AC 210 Learnsmart Chapters 5-8

Retailers...

- buys goods and sells them directly to individuals

Collection of a previously written-off account is called a(n) _____.

recovery

Control environment...

refers to helping people in the organization to understand the importance of internal control

Purchase _____ and allowances are accounted for with a credit to inventory and a debit to cash or accounts payable.

returns

The Sarbanes-Oxley (SOX) Act provides increased regulations for _______. (Select all that apply.) a. internal controls b. corporate executives c. auditors d. the International Accounting Standards Board

a, b, & c: internal controls, corporate executives, & auditors

Which line item would be found on a merchandiser's income sheet and not on a service firm's? (Select all that apply.) a. depreciation expense b. sales revenue c. cost of goods sold d. service revenue

b & c: sales revenue & cost of goods sold

Additional mechanisms of internal control include a. a slow computer network b. anonymous hotlines c. a sound marketing plan d. bonding e. mandatory vacations

b, d, & e: anonymous hotlines, bonding, & mandatory vacations

True or false: Accountants are spending more of their time on executing the basic steps of a voucher system than has been spent in the past.

false

On November 1, 2018, Lendem, Inc., loaned an employee $100,000 at 6% with both the interest and principal due in 1 year. The adjusting entry to record the interest generated but not received as of December 31, 2018 includes a debit to _____. a. interest receivable of $1,000 b. cash of $5,000 c. interest payable of $6,000 d. interest receivable of $6,000 e. interest revenue of $1,000

a. interest receivable of $1,000

Using the aging of receivables method, an unadjusted allowance for doubtful accounts will have a credit balance when the amount of write offs recorded during the period is _____ the amount allowed in the prior accounting period. a. less than b. same as c. greater than

a. less than

Which of the following provisions of the Sarbanes-Oxley (SOX) Act aim to encourage honesty and the reporting of dishonest acts? (Select all that apply.) a. stock options b. whistle-blower protection c. anonymous tip lines d. code of ethics

b, c, & d: whistle-blower protection, anonymous tip lines, & code of ethics

A common principle of internal control is to _____. a. have cashiers verify that the cash in their cash register drawer reconciles with the accounting records b. combine activities to ensure efficiency c. assign each task to only one employee

c. assign each task to only one employee

Net sales on an income statement equals sales revenue ________. a. minus cost of goods sold b. plus sales returns and allowance less sales discounts c. minus sales returns, allowances, and discounts d. plus sales returns, allowances, and discounts

c. minus sales returns, allowances, and discounts

On May 1, beginning inventory consists of 10 items that cost $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual LIFO, cost of goods sold for the month ended May 31 equals _____. a. $164 b. $144 c. $124 d. $140

d. $140

The company needs to record the reconciling items that are on the _____ side of the bank reconciliation. a. bank b. book

b. book

EFT stands for "electronic fund _____".

transfer

Manufacturing company...

- makes the finished goods

Which of the following reconciling items on a bank reconciliation need to be recorded in the company's record to adjust its cash balance so that it's up to date? (Select all that apply.) a. interest revenue b. customer's check rejected by the bank as NSF c. cleared checks d. deposits in transit e. outstanding checks f. EFT received from customers discovered on the bank statement

a, b, & f: interest revenue, customer's check rejected by the bank as NSF, & EFT received from customers discovered on the bank statement

A difference between an imprest payroll account and petty cash is petty cash is _____. a. not held at the bank b. better controlled c. a special account at the company's bank d. used for payroll

a. not held at the bank

If a bank reconciliation included a deposit in transit of $670, the company's entry for this reconciling item would include _____. a. nothing, because the deposit has already been recorded b. a credit to cash of $670 c. a debit to cash of $670

a. nothing, because the deposit has already been recorded

Sales returns and allowances are reported on the _____. a. balance sheet as a reduction to Gross Profit b. income statement as a reduction to Cost of Goods Sold c. income statement d. balance sheet as a contra-account

c. income statement

Corporations with high sales volume, such as Walmart, usually have _____. a. high gross profit percentages b. the same gross profit percentage as high-end retailers c. low gross profit percentages

c. low gross profit percentages

The allowance for doubtful accounts T-account will have the _____ on the credit side. a. write-offs on specific customers b. sales on account c. sales discounts and allowances d. estimated bad debts from the adjusting entry

d. estimated bad debts from the adjusting entry

Restrict access...

do not provide access to assets or information unless it is needed to fulfill the assigned task

True or false: the person who has custody of an asset should also account for the asset. A person who performs both duties will best know what the balance should be in the accounting records.

false

The _____ cycle is a series of activities that the company undertakes to generate sales and ultimately cash.

operating

To avoid duplicate payment, the voucher should be marked "_____" as the final step in the voucher system.

paid

Cost of goods sold equals beginning inventory plus _____ minus ending inventory.

purchases

If a company's inventory costs are rising, _____ inventory costing method(s) typically results in a higher income tax expense. a. the LIFO b. the FIFO c. both FIFO and LIFO

b. the FIFO

Which of the following are disadvantages to extending credit to customers? (Select all that apply.) a. increased wage costs b. delayed receipts of cash c. increased bad debt costs d. increased sales e. increased credit ratings

a, b, & c: increased wage costs, delayed receipts of cash, & increased bad debt costs

Which of these might cause the value of inventory to fall below its original cost? (Select all that apply.) a. damage b. increased competition c. decrease in gross profit d. obsolescence from going out of style

a, b, & d: damage, increased competition, & obsolescence from going out of style

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts _____. (Select all that apply.) a. detect theft b. detect shrinkage c. are not needed when a perpetual system is used d. detect bookkeeping errors

a, b, & d: detect theft, detect shrinkage, & detect bookkeeping errors

Which of the following are true regarding a bank statement. (Select all that apply.) a. it includes interest earned b. it may include NSF checks c. it may include service charges d. it lists all checks written by the company for the month e. it lists all checks that have cleared the bank f. the ending cash equals the cash balance per the accounting records

a, b, c, & e: it includes interest earned, it may include NSF checks, it may include service charges, & it lists all checks that have cleared the bank

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? a. it would be added to the book balance b. it does not belong on the bank reconciliation c. it would be added to the bank balance d. it would be deducted from the bank balance e. it would be deducted from the book balance

d. it would be deducted from the bank balance

Which of the following is subtracted from the bank balance on a bank reconciliation? a. deposits in transit b. EFT received from customers c. bank service charge d. outstanding checks

d. outstanding checks

"NSF" checks stands for "non-_____ funds".

sufficient

Which method requires first estimating the desired amount for the allowance for doubtful accounts and then determining the amount of the expense required to get this desired balance given the amount of the unadjusted balance? a. percentage of credit sales method b. aging of accounts receivable method c. direct write-off method

b. aging of accounts receivable method

Given the unadjusted allowance for doubtful accounts has a $50 debit balance, the amount of the receivables written off was _____ than the amount estimated in the prior period. Thus, bad debt expense will be _____ in the current period than had the unadjusted balance been a credit balance. a. greater; less b. less; less c. greater; greater d. less; greater

c. greater; greater

The bank credited your account for a deposit that should have been deposited into another customer's bank account, not yours. This bank error should be a(n) _____ on a bank reconciliation. a. deduction from the book balance b. addition to the book balance c. addition to the bank balance d. deduction from the bank balance

d. deduction from the bank balance

The entry to record a sales return that results in the issuing of a gift card is recorded with a debit to sales revenue and a credit to _____ _____ and also a debit to _____ and a credit to cost of goods sold.

deferred revenue; inventory

True or false: converting long-outstanding accounts receivable into new notes receivable to reduce bad debt expense is unethical.

true

Rank in order, from highest (top) to lowest (bottom), the anticipated inventory turnover ratios for the following companies. - Bath Iron Works (sells battle ships to the US government - Tiffany & Co. (exclusive jewelry story) - Walmart

Walmart, Tiffany & Co., Bath Iron Works

Some managers commit fraud because they are under great pressure to report a high net income to meet _____. (Select all that apply.) a. loan covenant requirements b. financial analysts' earnings forecasts c. shareholders' expectations d. internal revenue service regulations

a, b, & c: loan covenant requirements, financial analysts' earnings forecasts, & shareholders' expectations

_____ receivable arise from making sales to customers on account and are non-interest bearing. _____ receivable are formal written contracts that are interest bearing.

accounts; notes

Good internal control over cash requires cashiers to _____. (Select all that apply.) a. record the sales per the cash register tape in the accounting records b. give a cash register receipt to every customer c. restrict access to the cash register

b & c: give a cash register receipt to every customer & restrict access to the cash register

At the end of the day, the cashiers rung up sales of $5,000 and counted on the cash count sheets and deposited $5,100, the accounting department would make a journal entry for the day's sales that includes _____. (Select all that apply.) a. debit to Cash for $5,000 b. debit to Cash for $5,100 c. credit to Sales Revenue of $5,000 d. credit to Cash Overage of $100 e. debit to Cash Overage of $100

b, c, & d: debit to Cash for $5,100, credit to Sales Revenue of $5,000, & credit to Cash Overage of $100

The write-off of a specific credit customer's account _____. a. increases bad debt expense on the income statement and decreases the net receivable balance on the balance sheet b. has no effect on the income statement or the net receivable balance on the balance sheet c. increase bad debt expense on the income statement and increases the net receivable balance on the balance sheet d. decreases bad debt expense on the income statement and decreases the net receivable balance on the balance sheet

b. has no effect on the income statement or the net receivable balance on the balance sheet

A system of _____ _____ consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations.

internal controls

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

inventory

A _____ income statement shows how much profit is earned form product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company.

multistep

The receivables turnover ratio is computed as _____. a. net income divided by end-of-year net accounts receivable b. net sales revenue divided by end-of-year net accounts receivable c. net sales revenue divided by the average net accounts receivable

c. net sales revenue divided by the average net accounts receivable

Goods in transit that have terms FOB shipping point should be included in the _____ inventory. a. buyer's b. consignment c. work in process d. seller's

a. buyer's

The days to collect ratio provides what kind of information? (Select all that apply.) a. that a higher number of days means a longer (worse) time for collection b. the average number of days from sale on account to collection c. that a higher number of days means a shorter (better) time for collection d. that a higher number of days means more customers are defaulting

a & b: that a higher number of days means a longer (worse) time for collection & the average number of days from sale on account to collection

Based on an aging of accounts receivables, management assigned 1% to the $100,000 of receivables 0-30 days outstanding, 5% to the $100,00 receivables 31-60 days and 20% to the $1,000 of receivables over 60 days. After making the adjusting entry the balance in the allowance for doubtful accounts will equal _____.

$1,700

A company lends $1,000 each to two employees at a rate of 6% on December 1. One employee is to repay the note in 3 months and the other in 6 months. At December 31, how much interest will the company accrue? $_____. (Round to the nearest dollar.)

$10

Wholesaler...

- buys goods and sells them to other companies that will then sell them to individuals

Independent verify...

- check others' work - a company manager compared the cash count sheets with the bank deposit slip

Assuming rising inventory prices, rank which inventory method results in the higher ending inventory value. List from top to bottom, in order of highest ending inventory to lowest ending inventory value. - weighted average - LIFO - FIFO

FIFO, weighted average, LIFO

Which of the following are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement? (Select all that apply.) a. electronic funds transfer b. services charges c. outstanding checks d. interest income e. deposits in transit

a, b, & d: electronic funds transfers, services charges, & interest income

What inventory accounts would one expect to see in the accounting records of a company that makes furniture? (Select all that apply.) a. work in process inventory b. raw materials inventory c. cost of sales inventory d. finished goods inventory

a, b, & d: work in process inventory, raw materials inventory, & finished goods inventory

The Sarbanes-Oxley (SOX) Act aims to reduce fraud by _____. (Select all that apply.) a. reducing opportunities b. increasing bonuses based on income c. counteract incentives d. encouraging honesty in employees

a, c, & d: reducing opportunities, counteract incentives, & encouraging honesty in employees

If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO? (Select all that apply.) a. income tax expense will be lower b. income tax expense will be higher c. gross profit will be higher d. gross profit will be lower e. cost of goods sold will be higher f. sales will be higher

a, d, & e: income tax expense will be lower, gross profit will be lower, & cost of goods sold will be higher

Inventory began with $30,000. During the period the company purchased $61,000 of merchandise. At the end of the period, inventory was $22,000. If the gross profit percentage was 40%, what was sales revenue? a. $115,000 b. $75,000 c. $46,000 d. $18,400

a. $115,000

King Costume started the month with 8 masks in its beginning inventory that cost $10 each. During the month, King Costume purchased 40 additional masks for $12 each. At the end of the month, King counted its inventory and found that 5 masks remained unsold. If King Costume used LIFO periodic, its cost of goods sold for the month is _____. a. $510 b. $60 c. $500 d. $516 e. $50

a. $510

Removing an uncollectible account and its corresponding allowance from the accounting records is called _____. a. a write-off b. double entry accounting c. a write-up d. subsidiary accounting

a. a write-off

A subsidiary account _____. a. is kept for each customer's accounts receivable and the total of all customers' accounts receivable is reported on the balance sheet b. netted against accounts receivable on the balance sheet c. reports the ownership percentage that the parent company owns of its subsidiaries d. is a contra-asset account that is used to report the amount not expected to be collected from customers

a. is kept for each customer's accounts receivable and the total of all customers' accounts receivable is reported on the balance sheet

If inventory is on the balance sheet under current assets and cost of goods sold is on the income statement, then this company is most likely a _____. a. merchandiser b. limited liability corporation c. sole proprietor d. service company

a. merchandiser

Gross profit equals _____. a. net sales minus cost of goods sold b. revenues minus expenses c. beginning inventory plus purchases minus ending inventory d. revenues minus inventory

a. net sales minus cost of goods sold

Delectable, Inc.'s unadjusted trial balance includes accounts receivable of $10,000; allowance for doubtful accounts of $50 credit balance; and credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show _____. (Select all that apply.) a. allowance for doubtful accounts of $1,050 b. bad debt expense of $950 c. allowance for doubtful accounts of $1,000 d. allowance for doubtful accounts of $950 e. bad debt expense of $1,000

b & c: bad debt expense of $950 & allowance for doubtful accounts of $1,000

The objectives when accounting for accounts receivable and bad debts are to _____. (Select all that apply.) a. increase both accounts receivable and net income by the amount of credit sales that are unlikely to be collected as cash b. report accounts receivable net of the amount the company does not expect to collect (I.e., at the net realizable value) c. match the cost of bad debts to the accounting period in which the related credit sales are made

b & c: report accounts receivable net of the amount the company does not expect to collect (I.e., at the net realizable value) & math the cost of bad debts to the accounting period in which the related credit sales are made

What may cause inventory turnover ratios to vary significantly between companies in the same industry? (Select all that apply.) a. companies in the same industry will have the same inventory turnover ratios b. some companies may sell fewer higher-cost goods c. some companies may sell more lower-cost goods

b & c: some companies may sell fewer higher-cost goods & some companies may sell more lower-cost goods

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 _____. (Select all that apply.) a. debit to purchase discounts b. credit to inventory c. credit to cost of goods sold d. debit to cost of goods sold e. debit to inventory f. credit to purchase discounts

b & d: credit to inventory & debit to cost of goods sold

Blog Inc,. has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is _____. a. $15,000 b. $20,000 c. $25,000 d. $45,000 e. $30,000 f. $5,000

b. $20,000

Assuming the allowance method, the entry to record the write-off of a specific, non-paying customer is recorded with a debit to _____. a. bad debt expense and credit to accounts receivable b. allowance for doubtful accounts and a credit to accounts receivable c. accounts receivable and credit to allowance for doubtful accounts d. accounts receivable and credit to bad debts expense

b. allowance for doubtful accounts and a credit to accounts receivable

Which of the following statements is true? a. bad debt expense is a permanent account b. allowance for doubtful accounts is a permanent account c. an adjusting entry to record the estimated bad debt requires a debit to allowance for doubtful accounts and a credit to bad debt expense d. bad debt expense on the income statement will always equal the allowance for doubtful accounts on the balance sheet

b. allowance for doubtful accounts is a permanent account

Specific identification is _____. a. the classification of an account as an asset, liability, or stockholders' equity account b. an inventory method that tracks which item is actually sold and debits cost of goods sold for the actual cost of the item c. a high-tech security technique for identifying key employees d. a detailed list of all of a corporation's stockholders

b. an inventory method that tracks which item is actually sold and debits cost of goods sold for the actual cost of the item

Which of the following poses a high risk of theft because of its high volume and ease of portability? a. vehicles b. cash c. computers d. deferred revenue e. accounts receivable

b. cash

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Will cost of goods sold be higher using a FIFO periodic inventory system or a FIFO perpetual inventory system? a. the perpetual inventory system b. cost of goods sold will be the same c. the periodic inventory system

b. cost of goods sold will be the same

Days to sell measures the average number of _____. a. times per year receivables are collected b. days from the time inventory is purchased to the time it is sold c. days' sales in accounts payable d. times per year the inventory is purchased

b. days from the time inventory is purchased to the time it is sold

Using the allowance method, which is the correct adjusting journal entry to record bad debt expense? a. debit bad debt expense and credit sales revenue b. debit bad debt expense and credit allowance for doubtful accounts c. debit bad debt expense and credit accounts receivable d. debit allowance for bad debt expense and credit bad debt expense

b. debit bad debt expense and credit allowance for doubtful accounts

This document indicates the date, quantity, and condition of the goods. It is then sent to the accounting department to notify so the purchase can be recorded. a. supplier invoice b. receiving report c. voucher d. purchase requisition e. purchase order

b. receiving report

Service charges are ____ of a bank reconciliation. a. subtracted from the bank's balance b. subtracted from the book's balance c. added to the book's balance d. added to the bank's balance

b. subtracted from the book's balance

What effect does the collection of a note receivable, excluding interest, have on the accounting equation? a. assets are increased and stockholders' equity is increased b. total assets remain the same c. assets are reduced and stockholders' equity is reduced

b. total assets remain the same

Gross profit is _____. (Select all that apply.) a. credited when goods are sold b. debited when goods are sold c. equal to net sales minus cost of goods sold d. a current asset on the balance sheet e. a subtotal on the income statement

c & e: equal to net sales minus cost of goods sold & a subtotal on the income statement

Which inventory costing method uses the oldest cost for cost of goods sold on the income statement and the newest cost for inventory on the balance sheet? a. weighted average b. specific identification c. FIFO d. LIFO

c. FIFO

By comparing the number of days to collect with the length of the credit policy, companies can determine whether its customers _____. a. are given favorable credit policies b. are making excessive returns of goods c. are paying in accordance with the credit policy d. enjoy the product or service

c. are paying in accordance with the credit policy

If a company were to ignore the fact that the market value of its inventory is lower than its cost, then _____. a. its liabilities would be understated and its stockholders' equity overstated b. its accounting equations is correctly stated since the effect of the drop in value will be recorded when the goods are sold c. its assets and stockholders' equity would be overstated d. its assets and liabilities would be overstated

c. its assets and stockholders' equity would be overstated

Inventory consists of the purchase price _____. a. plus freight-out b. less freight-out c. plus freight-in d. less freight-in

c. plus freight-in

After approval of a purchase has been obtained, the purchasing agent completes a renumbered _____ that identifies the supplier, the delivery location, and the approved quantity and cost. a. receiving report b. purchase requisition c. purchase order d. voucher e. supplier invoice

c. purchase order

What is the effect on the allowance for doubtful accounts balance if the write-offs end up being less than the amount allowed for when recording the adjusting entry? a. there is no effect on the allowance account b. the allowance balance will decrease c. the allowance balance will increase

c. the allowance balance will increase

When a check is presented to a bank for payment and the amount is deducted from the payer's account, the check is said to have ________ the bank.

cleared

_____ inventory refers to goods a company is holding on behalf of the actual owner of the goods. The company is willing to try and sell the goods for the owner for a fee.

consignment

Allowance for doubtful accounts is a(n) _____-asset account and has a normal _____ balance.

contra; credit

A loan _____ specifies terms of a loan agreement that, if broken, can allow the lender to renegotiate the terms of the loan or force repayment.

covenant

A(n) _____ system involves the processing of purchases and payments made on account. a. cash receipts b. imprest c. accounts payable d. reconciliation e. voucher

e. voucher

The three components of the _____ _____ are incentive, opportunity and rationalization.

fraud triangle

Inventory costing methods allowed by US GAAP include: 1. specific _____ 2. _____ average 3. last in, _____ out 4. first in, _____ out

identification; weighted; first; first

Risk assessment...

refers to the continuous evaluation of the potential for fraud

True or false: cost of goods sold may include the write-down of inventory to market even though the goods haven't been sold.

true

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual FIFO, the cost of goods sold for the month ended May 31 equals _____.

$124

On May 1, beginning inventory consists of 10 items that cost $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual LIFO, ending inventory at May 31 equals _____.

$220

Acme, Inc. had cost of goods sold of $2,000. If beginning inventory was $2,100 and ending inventory was $500, Acme's purchases must have been $_____.

$400

What does each term mean in a 2/30, n/60 mean?

- 2: the discount percentage offered - 30: the number of days in discount period - n: "net" purchase - 60: maximum credit period

Establish responsibilities...

- assign each task to only one employee in order to allow one to determine who is at fault for an error or theft - just one employee receives cash - ensure that purchase requisition are made by employees approved to make purchases

To segregate duties involving cash receipts, specific responsibilities are assigned to various employees. Put the following steps in the correct chronological order listing the first step at the top. 1. a supervisor is responsible for collecting the cash at the end of each cashier's shift 2. members of the accounting department are responsible for ensuring that cash sales are properly recorded 3. cashiers are responsible for collecting cash and issuing a receipt at the point of sale

3, 1, 2

Barry Bees, Inc.'s cost of goods sold equals $10,000. Its beginning inventory was $800, and its ending inventory was $1,200. Barry Bee's days to sell equals _____ days (assume 365 days per year).

36.5

If a company assumes that its inventory costs flow out in the opposite order from which of the goods were purchased, it uses _____ to value its inventory.

LIFO

Which financial statements are needed to calculate the inventory turnover ratio? (Select all that apply.) a. balance sheet b. income statement c. statement of retained earnings d. statement of cash flows e. management's responsibility report

a & b: balance sheet & income statement

SOX reduces the opportunities for fraud by requiring publicly-traded companies to _____. (Select all that apply.) a. evaluate and report on its internal controls b. establish an audit committee of independent directors c. have their financial statements prepared by external auditors d. have external auditors evaluate the companies' internal controls

a, b, & d: evaluate and report on its internal controls, establish an audit committee of independent directors, & have external auditors evaluate the companies' internal controls

Which of the following income statement line items are affected by the inventory method chosen? (Select all that apply.) a. income from operations b. income tax expense c. sales d. net income e. income before income tax expense f. gross profit

a, b, d, e, & f: income from operations, income tax expense, net income, income before income tax expense & gross profit

What does the gross profit percentage tell you? a. a higher ratio means that more is available to cover operating expenses b. a higher ratio means that less profit is available to cover operating expenses c. it tells you the dollar amount of profits available to shareholders

a. a higher ratio means that more is available to cover operating expenses

Deposits in transit occur when you make a deposit _____. a. after the bank's normal business hours b. using an EFT c. and the check bounces (NSF) d. infrequently

a. after the bank's normal business hours

NSF checks from customers should be subtracted from the _____ balance on a bank reconciliation. a. book b. bank

a. book

The employee who records the entry to write off uncollectible accounts should _____. a. not be the same person who receives collections from customers b. be the same person who determines the credit policies for the company c. be the same person who makes the deposits to the bank

a. not be the same person who receives collections from customers

Which of the following would be considered merchandise inventory? a. purchased finished goods b. raw materials c. cost of goods sold d. work in process

a. purchased finished goods

Whether purchase discounts are recorded using the gross or net method, ultimately purchase discounts taken are _____. a. reductions to inventory b. reductions to accounts receivable c. increases to sales revenue d. increases to cost of goods sold

a. reductions to inventory

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record _____. (Select all that apply.) a. an increase in its inventory b. a decrease in its inventory c. cost of goods sold, which will be reported on the income statement d. cost of goods sold, which will be reported on the balance sheet

b & c: a decrease in its inventory & cost of goods sold, which will be reported on the income statement

The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a _____. (Select all that apply.) a. debit to cash of $1,000 b. debit to notes receivable of $1,000 c. credit to interest revenue of $1,000 d. credit to cash of $1,000 e. credit to notes receivable of $1,000

b & d: debit to notes receivable of $1,000 & credit to cash of $1,000

The two steps required using the allowance method, are to _____. (Select the two that apply.) a. later make an end-of-period adjustment to record the estimated bad debts b. later write-off specific customer balances when they are known to be uncollectible c. first write-off specific customer balances d. first make an end-of-period adjustment to record the estimated bad debts

b & d: later write-off specific customer balances when they are known to be uncollectible & first make an end-of-period adjustment to record the estimated bad debts

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? a. The bank should be notified, and the bank should correct its records by adding $45 to the company's account b. An adjusting entry must be made to debit Accounts payable and credit Cash for $45 c. No entry is needed for the reconciling item because it appears on the bank's side of the reconciliation d. An entry must be made to debit Cash and credit Accounts payable for $45

b. An adjusting entry must be made to debit Accounts payable and credit Cash for $45

An adjusting entry that debits sales revenue and credits refund liability as well as debits inventory-estimated for returns and credits cost of goods sold is recording the _____. a. estimated allowances b. estimated returns c. actual returns d. actual allowances

b. estimated returns

Which of the following is merchandise inventory? a. office supplies that a company plans to use in the next few months b. goods held for sale in the normal course of business c. equipment used to manufacture products which will be sold later d. raw materials and work in process

b. goods held for sale in the normal course of business

If a company hires an auditor to check that the work done by others within the company is supported by documentation, this is part of the internal control procedure of _____. a. restrict access b. independent verification c. segregation of duties d. bonding

b. independent verification

The journal entry to record the payment for merchandise previously purchased on account includes a debit to _____ and a credit to _____. a. accounts payable; inventory b. inventory; accounts receivable c. accounts payable; cash d. accounts receivable; cash e. accounts receivable; inventory f. inventory; accounts payable

c. accounts payable; cash

Rank companies A-C based on how favorable their receivables turnover ratio is (from most favorable on the top to the least favorable). (Assume the companies have similar credit terms.) - Company C: 2.4 times - Company A: 3.4 times - Company B: 5.6 times

company b, company a, company c

A weak system of internal _____ can lead to fraudulent financial statements. These procedures and policies help insure that information entered into the accounting system and reported in the financial statements is accurate and complete.

controls

The adjusting entry to record the allowance for doubtful accounts causes total _____. (Select all that apply.) a. liabilities to increase b. stockholders' equity to increase c. liabilities to decrease d. assets to decrease e. stockholders' equity to decrease f. assets to increase

d & e: assets to decrease & stockholders' equity to decrease

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a _____. (Select all that apply.) a. credit to cost of goods sold b. debit to sales revenue c. debit to inventory d. credit to sales revenue e. debit to accounts receivable f. debit to cost of goods sold g. credit to accounts receivable h. credit to inventory

d, e, f, & h: credit to sales revenue, debit to accounts receivable, debit to cost of goods sold, & credit to inventory

In a bank reconciliation, an outstanding check is _____. a. added to the book balance b. added to the bank balance c. deducted from the book balance d. deducted from the bank balance

d. deducted from the bank balance

Outstanding checks written by the company should be a(n) _____ on the company's bank reconciliation. a. addition to the book balance b. addition to the bank balance c. deduction from the book balance d. deduction from the bank balance

d. deduction from the bank balance

What does the adjusting entry for interest earned but not yet received have on the accounting equation? a. it results in an increase in assets and decrease in stockholders' equity b. it results in a decrease in assets and stockholders' equity c. it results in an increase in assets and liabilities d. it results in an increase in assets and stockholders' equity

d. it results in an increase in assets and stockholders' equity

A _____ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts.

direct

Blog Inc. has sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is _____. a. $25,000 b. $5,000 c. $30,000 d. $45,000 e. $20,000 f. $15,000

e. $20,000

Bijoux Company has net sales of $40,000; beginning inventory of $5,000; purchases of $25,000 and ending inventory of $7,000. Cost of Goods Sold equals _____. a. $17,000 b. $30,000 c. $25,000 d. $40,000 e. $23,000

e. $23,000

True or false: GAAP requires that a business must use an inventory accounting method that is the same as the physical flow of goods in and out of the business.

false

True or false: allowance for doubtful accounts is used for accounts receivable but not notes receivable.

false

True or false: internal controls prevent and detect all errors and fraud.

false

As inventory quality increases, its cost usually _____.

increases

_____ is one of the three fraud triangle components where the fraudsters perceive the misdeed is unavoidable or justified.

rationalization

A bank _____ is an internal report used to compare the bank statement with the company's cash records and should be prepared by an employee whose duties are separate from recording and handling of cash.

reconciliation

True or false: an income statement in comparative format means that more than one year's results are reported

true

A(n) _____ system is a process for approving and documenting all purchases and payments made on account.

voucher

What would cause a bank statement not to agree with the cash balance in the accounting records? (Select all that apply.) a. the bank paid interest that the company has not recorded b. the company made an error in recording a deposit c. the company wrote checks that have cleared the bank d. deposits outstanding that have been recorded on the company's records, but not on the bank's e. the bank made an error in recording a deposit made by the company

a, b, d, & e: the bank paid interest that the company has not recorded, the company made an error in recording a deposit, deposits outstanding that have been recorded on the company's records, but not on the bank's, & the bank made an error in recording a deposit made by the company

How do banks help businesses control cash? (Select all that apply.) a. independently verifying b. restricting the amount in the petty cash system c. documenting procedures d. restricting access to cash

a, c, & d: independently verifying, documenting procedures, & restricting access to cash

On February 1, 2019, Stretchers, Ins., receives $4,000 of interest of which $3,000 was generated and recorded in the prior accounting period ended December 31, 2018. The entry to record the collection of interest on February 1 includes a _____. (Select all that apply.) a. debit to cash of $4,000 b. credit to interest revenue of $4,000 c. credit to interest receivable of $3,000 d. debit to interest receivable of $4,000 e. credit to interest revenue of $1,000

a, c, & e: debit to cash of $4,000, credit to interest receivable of $3,000, & credit to interest revenue of $1,000

Which of the following items are netted against sales revenue arrive at net sales (sales revenue, net)? (Select all that apply.) a. sales discounts b. cost of goods sold c. deferred revenue d. gross profit e. sales allowances f. sales returns

a, e, & f: sales discounts, sales allowances, & sales returns

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $3,000; deposits in transit of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals _____. a. $9,910 b. $10,110 c. $8,910 d. $6,910

a. $9,910

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory? a. Breyer Company should include the $4,000 in its inventory b. Cellar Company owns the inventory, but Common Carrier Company has possession of it. Neither can include the $4,000 in its December 31 inventory c. Cellar Company owns the inventory, but Common Carrier Company has possession of it. Each of them should include half of the inventory, $2,000 each d. Common Carrier Company should include the $4,000 in its inventory, since the inventory is on its truck

a. Breyer Company should include the $4,000 in its inventory

Tresses, Inc., which has a December 31 year end, lent $1,000 on December 1 to an employee at 6% due in 6 months. When will Tresses record interest revenue? It will record _____. a. an adjusting entry on December 31 with a debit to interest receivable and credit to interest revenue for the interest generated in December b. interest earned on the payment date with a debit to cash and credit to interest revenue for the 6 months of interest generated c. a daily entry with a debit to interest receivable and credit to interest revenue for each day's interest generated

a. an adjusting entry on December 31 with a debit to interest receivable and credit to interest revenue for the interest generated in December

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to sales returns & allowances and a credit to accounts receivable. (No other accounts were affected.) What business event must have taken place? a. the customer received a damaged product, but kept the product and asked for a reduction in the price b. the customer received a damaged product and returned it c. the customer received an discount because the invoice was paid on time d. the customer sent in partial payment and promised to pay the balance next month

a. the customer received a damaged product, but kept the product and asked for a reduction in the price

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean _____. a. there are product quality issues b. the discount period is too long c. the shipping terms should be changed to FOB destination d. the discount period is too short e. the shipping terms should be changed to FOB shipping point

a. there are product quality issues

A(n) _____ of accounts receivables method is based on the amount of days the receivables have been unpaid. When determining the desired amount of the allowance for doubtful accounts, the older receivables are assigned a higher percent than newer ones.

aging

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: (Select all that apply.) a. determine whether a company is collecting its receivables in a timely fashion b. make comparisons over time c. compare one company with another d. measure the frequency of inventory turnover

b & c: make comparisons over time & compare one company with another

Using the aging approach management estimates that $1,000 of accounts receivable will be uncollectible. The allowance for doubtful accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a _____. (Select all that apply.) a. debit to bad debt expense of $1,000 b. debit to bad debt expense of $900 c. credit to allowance for doubtful accounts of $1,000 d. credit to allowance for doubtful accounts of $900 e. debit to bad debt expense of $1,100 f. credit to allowance for doubtful accounts of $1,100

b & d: debit to bad debt expense of $900 & credit to allowance for doubtful accounts of $900

If a company used LIFO for tax reporting purposes, then it _____. (Select all that apply.) a. will show a higher cost of goods sold and lower income tax expense when costs are falling b. most likely has been experiencing rising inventory costs c. may have used a different inventory method for financial reporting purposes d. must have used LIFO for financial reporting purposes

b & d: most likely has been experiencing rising inventory costs & must have used LIFO for financial reporting purposes

The weighted average cost method uses the weighted average cost to calculate the value of _____. (Select all that apply.) a. equipment b. cost of goods sold c. sales d. payments to suppliers e. inventory f. suppliers

b & e: cost of goods sold & inventory

Which of the following are reported on the income statement? (Select all that apply.) a. inventory b. cost of goods sold c. goods available to sell d. gross profit e. sales revenue

b, d, & e: cost of goods sold, gross profit, & sales revenue

Which of the following is not an internal control for checks received through the mail? a. The accounting department verifies the bank deposit by comparing the cash receipts list with the deposit slip from the bank b. The accounting department counts the cash, prepare the deposit slip and deposits the cash in the bank c. The mail clerk sends the cash receipts list and the customers' remittance advices to the accounting department d. The mail clerk gives checks and money orders to the person who makes the bank deposit

b. The accounting department counts the cash, prepare the deposit slip and deposits the cash in the bank

Which of the following would be considered inventory for a merchandiser? a. cost of goods sold b. work in process c. acquired goods for resale d. supplies

c. acquired goods for resale

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted allowance for doubtful accounts has a debit balance of $1,000 After the adjustment, the _____. a. the bad debt expense will equal $90,000 b. the allowance for doubtful accounts will have a $91,000 credit balance c. allowance for doubtful accounts will have a $90,000 credit balance d. allowance for doubtful accounts will have an $89,000 credit balance

c. allowance for doubtful accounts will have a $90,000 credit balance

If the cash collected is greater than the amount per the cash register, then _____. a. cash shortage is credited b. cash overage is debited c. cash overage is credited d. cash shortage is debited

c. cash overage is credited

In a perpetual inventory system, inventory is initially recorded at _____. a. expected selling price b. gross proft c. cost d. expected profit e. expected resale value

c. cost

Chicken Little started the month with 5 eggs in its inventory that cost $2 each. During the month, Chicken Little bought 30 more eggs that cost $2.50 each. At the end of the month, Chicken Little counted its inventory and found that 8 eggs remained unsold. If Chicken Little uses FIFO periodic, its cost of goods sold for the month is _____. a. $20 b. $55 c. $17.50 d. $65 e. $67.50

d. $65

If the allowance for doubtful accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the _____. a. accountant must have made an error because the allowance account should have a $0 balance just like the bad debt expense b. amounts actually written off were greater than the estimated amount of uncollectibles c. bad debt expense on the income statement will be greater than the allowance for doubtful accounts on the balance sheet d. estimated amount of uncollectibles was greater than the amounts actually written off

d. estimated amount of uncollectibles was greater than the amounts actually written off

This document is compared to the internally generated documents of the voucher system to ensure the quantity and cost agree with what has been ordered and received. If all reconciles, the accounting department will record the purchase in the accounting records. a. purchase requisition b. purchase order c. voucher d. receiving report e. supplier invoice

d. receiving report

Physically locking up assets and electronically securing access to other assets and information is required by the internal control principle of _____. a. segregation of duties b. documenting procedures c. establishing responsibilities d. restricting access

d. restricting access

A major drawback to the periodic inventory system is _____. a. it is difficult to know the exact amount of purchases b. the need to use scanners in order for cost of goods sold to be determined c. it is difficult to maintain because inventory is updated after each sale d. the amount of inventory on hand and sold is unavailable during the accounting period

d. the amount of inventory on hand and sold is unavailable during the accounting period

the receipt of an interest payment...

debit cash and credit interest receivable

Segregate duties...

- do not make one employee responsible for all parts of a process - a person different from whom receives the cash makes the deposit in the bank - accounting department prepares the journal entry, not the purchasing department

Document procedures...

- prepare documents to show activities that have occurred - cash receipts are summarized and their total is calculated - prepare a receiving report as proof of receipt of purchases

Service company...

- will typically not have inventory on its balance sheet or cost of goods sold on its income statement

Which of the following statements are true? (Select all that apply.) a. an increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory b. an increased inventory balance is desirable if management if building up stock in anticipation of higher sales c. an increased inventory balance is desirable if the resulting inventory turnover ratio is lower

a & b: an increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory & an increased inventory balance is desirable if management if building up stock in anticipation of higher sales

When recording the adjusting entry for uncollectible accounts using the allowance method, customers' subsidiary accounts are not directly reduced. The reason is _____. (Select all that apply.) a. the amounts are estimates and no one knows which particular customers will not pay b. the company would lose track of which customers still owe money c. subsidiary accounts are unable to be reduced d. the write-offs were previously recorded so customers' accounts would be reduced twice

a & b: the amounts are estimates and no one knows which particular customers will not pay & the company would lose track of which customers still owe money

Which of the following statements are true about a perpetual inventory system? (Select all that apply.) a. until inventory is sold, it is an asset reported at its cost on the balance sheet b. after inventory is sold, its cost is removed from the balance sheet and reported on the income statement as an expense c. cost of goods sold is recognized as soon as inventory is purchased

a & b: until inventory is sold, it is an asset reported at its cost on the balance sheet & after inventory is sold, its cost is removed from the balance sheet and reported on the income statement as an expense

In which of these situations would a merchandiser record revenue? (Select all that apply.) a. goods were delivered FOB shipping point but have not yet arrived at the buyer's place of business b. the customer paid for the goods in advance of the obligation being fulfilled and before the goods have been transferred to the customer c. the obligation has been fulfilled and control of the goods has been transferred to the customer d. goods were delivered FOB destination but have not yet arrived at the buyer's place of business

a & c: goods were delivered FOB shipping point but have not yet arrived at the buyer's place of business & the obligation has been fulfilled and control of the goods has been transferred to the customer

On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of the time lags? (Select all that apply.) a. outstanding checks b. bounced checks c. deposits in transit d. electronic funds transfers

a & c: outstanding checks & deposits in transit

In which situation does a company issue a note receivable? (Select all that apply.) a. the company lends money to employees or businesses b. the company sells to customers on account and expects payment within 30 days c. the company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest

a & c: the company lends money to employees or businesses & the company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest

Which statements are true? (Select all that apply.) a. the inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods b. the inventory methods apply to perpetual inventory systems and not periodic inventory systems c. first-in, last-out is one of the titles of inventory methods allowed by GAAP d. a grocery store may use the last-in, first-out inventory method

a & d: the inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods & a grocery store may use the last-in, first-out inventory method

In a perpetual inventory system, which of the following statements are true? (Select all that apply.) a. the purchaser should record freight-in as an asset, inventory b. the purchaser should record the freight-in as a selling expense c. the seller should record freight-out as a cost of goods sold d. the seller should record freight-out as a selling expense

a & d: the purchaser should record freight-in as an asset, inventory & the seller should record freight-out as a selling expense

Any cost incurred to get the merchandise into a condition and location ready for sale should be debited to _____. a. inventory b. cost of goods sold and freight-in expense c. cost of goods sold d. inventory and freight-in expense

a. inventory

Which line item would be found on a merchandiser's balance sheet and not on a service firm's? a. inventory b. depreciation expense c. cost of goods sold d. supplies

a. inventory

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted allowance for doubtful accounts has a debit balance of $1,000. After the adjustment, bad debt expense on the income statement will be _____ the allowance for doubtful accounts on the balance sheet. a. less than b. greater than c. the same as

a. less than

Which line item would be found on a service firm's income sheet and not on a merchandiser's? a. service revenue b. supplies c. cost of goods sold d. sales revenue e. depreciation expense f. inventory

a. service revenue

The benefits of internal control procedures are that they _____. (Select all that apply.) a. decrease a firm's taxes, which increases its available cash b. improve the efficiency and effectiveness of operations c. enhance the reliability of accounting information d. protect against theft of assets

b, c, & d: improve the efficiency and effectiveness of operations, enhance the reliability of accounting information, & protect against theft of assets

Sales returns and allowances _____. (Select all that apply.) a. increases the amount the seller expects to receive from customers b. are typically recorded after the initial sale when the actual return or allowance occurs c. are required to be recorded at the time of initial sale d. are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months e. reduce the amount the seller expects to receive from customers

b, d, & e: are typically recorded after the initial sale when the actual return or allowance occurs, are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months & reduce the amount the seller expects to receive from customers

The three categories of employee fraud are _____. (Select all that apply.) a. SOX b. asset misappropriation c. GAAP d. SEC e. corruption f. internal controls g. financial statement fraud

b, e, & g: asset misappropriation, corruption, & financial statement fraud

Which of the following are found on the income statement of a merchandiser? (Select all that apply.) a. deferred revenue b. cost of goods sold c. inventory d. cash e. accounts receivable f. gross profit g. sales revenue

b, f, & g: cost of goods sold, gross profit, & sales revenue

Using the aging approach, management estimates that 10% of the $10,000 of accounts receivable will be uncollectible. The allowance for doubtful accounts has a $100 unadjusted credit balance. After the bad debt adjusting entry is recorded, bad debt expense on the income statement will be _____ the allowance for doubtful accounts on the balance sheet. a. the same amount as b. $100 less than c. $100 more than

b. $100 less than

Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold one of the diamonds that was purchased on July 9. Using perpetual specific identification, its inventory after the December 24 sale is _____. a. $2,200 b. $2,250 c. $2,300 d. $2,240 e. $1,650 f. $550

b. $2,250

Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using periodic weighted average cost, its cost of goods sold is _____. a. $550 b. $560 c. $600 d. $500

b. $560

In its first year of business, ABC, Inc. had accounts receivable of $8,000 and credit sales of $38,000. Management estimates 2% of the total credit sales will be uncollectible. Bad debt expense equals _____. a. $160 b. $760 c. $750 d. $0, because bad debt expense is recorded later when the customers do not pay

b. $760

If you had 1 unit that cost $3 in beginning inventory, purchased 1 more at $2 and then later another at $1, which method would result in the higher cost of goods sold and lower gross profit if you sold 2 of the units? a. it would depend on the price the goods were sold for b. FIFO c. they would he the same for both methods d. LIFO

b. FIFO

Deposits in transit are _____ on a bank reconciliation. a. added to the book balance b. added to the bank balance c. subtracted from the bank balance d. subtracted from the book balance

b. added to the bank balance

Which method of allowing for estimated uncollectible accounts is generally more accurate? a. neither is more accurate than the other b. aging of accounts receivable method c. percentage of credit sales method

b. aging of accounts receivable method

In a bank reconciliation, interest revenue on the bank account balance is added to the _____ balance. a. bank b. book

b. book

If a cashier rang up sales totally $4,000, but only had $3,997 to deposit, which journal entry would be recorded? A debit to _____. a. sales of $4,000 and cash shortage of $3 and a credit to cash of $3,997 b. cash of $3,997 and cash shortage of $3 and a credit to sales revenue of $4,000 c. cash of $3,997 and cash shortage of $3 and a credit to deferred revenue of $4,000 d. cash of $3,997 and a credit to cash shortage of $3 and sales revenue of $4,000

b. cash of $3,997 and cash shortage of $3 and a credit to sales revenue of $4,000

If the inventory cost is $20,000 and the market value is $18,000, then the company should _____. a. not record any entry because of the cost principle b. debit cost of goods sold and credit inventory for $2,000 c. debit inventory for $20,000 and credit cost of goods sold for $18,000 and selling expense for $2,000 d. debit inventory and credit selling expense for $2,000

b. debit cost of goods sold and credit inventory for $2,000

A bank service charge should be a(n) _____ on a bank reconciliation. a. addition from the bank balance b. deduction from the book balance c. deduction from the bank balance d. addition to the book balance

b. deduction from the book balance

A(n) _____ is used for paying employees whereby the company has the bank transfer the exact amount of payroll into a special payroll account. After all employees have been paid, the balance in the special payroll account should be zero and, if not, indicates an error has occurred. a. payroll system b. imprest system c. voucher system d. petty cash system

b. imprest system

The procedure of bank reconciliation is an example of which principle of internal control? a. establish responsibility b. independent verification c. document procedures d. loan covenants e. bonding

b. independent verification

This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation? a. it would be added to the bank balance b. it would be added to the book balance c. it does not belong on the bank reconciliation d. it would be deducted from the bank balance e. it would be deducted from the book balance

b. it would be added to the book balance

Applying the lower of cost or market rule results in inventory being reported _____. a. cost because the historical cost rule takes precedence b. market value if lower than cost c. higher market values

b. market value if lower than cost

If companies are required to adopt IFRS, companies will _____. a. have to switch to weighted average cost b. no longer be able to use LIFO c. have to switch to FIFO d. no longer be able to use FIFO

b. no longer be able to use LIFO

Instead of a petty cash system, many companies use _____ which allow employees to purchase business-related items. a. purchase requisitions b. pcards c. vouchers d. EFTs

b. pcards

Every merchandise sale has two components which require an entry in a perpetual inventory system. Select these two components given the sale was made on account to a customer. a. debit inventory and credit accounts payable in the amount of the selling price times the quantity sold b. debit sales revenue and credit accounts receivable in the amount of the selling price times the quantity sold c. debit cost of goods sold and credit inventory in the amount of the cost times the quantity sold d. debit inventory and credit cost of goods sold in the amount of the cost times the quantity sold e. debit accounts receivable and credit sales revenue in the amount of the selling price times the quantity sold

c & e: debit cost of goods sold and credit inventory in the amount of the cost times the quantity sold & debit accounts receivable and credit sales revenue in the amount of the selling price times the quantity sold

Inventory shrinkage can be determined by comparing the _____. (Select all that apply.) a. beginning inventory minus purchases minus cost of goods sold to the actual inventory balance from a physical count b. information from the periodic inventory system to the physical count c. information from the perpetual inventory system to the physical count d. beginning inventory plus purchases plus cost of goods sold to the actual inventory balance from a physical count e. beginning inventory plus purchases minus cost of goods sold to the actual inventory balance from a physical count

c & e: information from the perpetual inventory system to the physical count & beginning inventory plus purchases minus cost of goods sold to the actual inventory balance from a physical count

The three variables needed to calculate interest are the _____. (Select all that apply.) a. interest payment b. agent c. annual interest rate d. time period covered in the interest calculation e. principal

c, d, & e: annual interest rate, time period covered in the interest calculation, & principal

Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10 each. It purchased 3 more at $12 each. What is the weighted average cost per unit? a. $11.50 b. $11.00 c. $11.20 d. it cannot be determined until the units are weighed

c. $11.20

Bijoux 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 equals _____. a. $25,000 b. $37,000 c. $30,000 d. $70,000 e. $17,000 f. $23,000

c. $30,000

Beginning inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using last-in, first-out, cost of goods sold equals _____. a. $30 b. an indeterminable amount given the specific items sold was not identified c. $33 d. $31 (rounded to the nearest dollar) e. $31.50

c. $33

On October 25, Yacht Doc received $210,000 for a yacht valued at $190,000 and a service contract to be performed evenly from November through February. During November, the yacht was delivered and one month of the service contract was performed. The remaining services are to be performed evenly over the next three months. In what month should the service contract be recognized as revenue? a. $20,000 in November b. $20,000 in February c. $5,000 in each month from November to February d. $20,000 in October

c. $5,000 in each month from November to February

ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy? a. there are no downsides as the credit card company bears all risks and costs b. the company has to wait 30 days to collect cash from the credit card companies c. credit card companies charge fees that reduce profits

c. credit card companies charge fees that reduce profits

Inventory is reported as a(n) _____ on the _____. a. expense; income statement b. expense; balance sheet c. current asset; balance sheet only d. current asset; balance sheet and income statement

c. current asset; balance sheet only

If the allowance for doubtful accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method, then it must mean that _____. a. direct write-off method was used b. sales method was used c. debit to bad debt expense will be $1,000 more than the desired ending balance in the allowance for doubtful accounts d. aging method was used e. debit to bad debt expense will be $1,000 less than if the allowance balance had been $0

c. debit to bad debt expense will be $1,000 more than the desired ending balance in the allowance for doubtful accounts

Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of _____. a. segregating duties b. independently verifying c. establishing responsibility

c. establishing responsibility

The services provided by a bank help business control cash by _____. a. restricting access and preparing bank reconciliations b. restricting access, providing imprest and petty cash systems, and independent verification c. restricting access and providing documentation and independent verification

c. restricting access and providing documentation and independent verification

Electronic funds transfers (EFT) discovered on the bank statement _____. a. mean that a deposit is in transit and will need to he added back to your cash balance b. are not reconciling items as they do not affect the cash balance in your records c. will need to be adjusted on your records because your cash balance is affected d. mean that checks have not cleared the bank and will need to be added back to your cash balance

c. will need to be adjusted on your records because your cash balance is affected

At year end, CurlZ, Inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. Market values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. CurlZ should report its inventory at _____. a. $1,240 b. $1,040 c. $1,200 d. $1,000

d. $1,000

the receipt of the principal payment...

debit cash and credit notes receivable

the adjusting entry to record interest owed...

debit interest receivable and credit interest revenue

the issuance of a note...

debit notes receivable and credit cash

In preparing your bank reconciliation, you notice that you recorded a deposit as $100 instead of $10. You should _____. a. subtract $90 from your cash and do not make an entry b. add $90 to your cash and make an entry c. add $90 to your cash and do not make an entry d. add $10 to your cash and do not make an entry e. subtract $90 from your cash and make an entry

e. subtract $90 from your cash and make an entry

Information and communication...

refers to the documentation of activities that promote effective internal controls

Monitoring activities...

refers to the evaluation of internal controls to determine if they are working as intended

Control activities...

refers to the work responsibilities and duties completed to reduce risks to an acceptable level

Which of these would explain an increase in a company's inventory turnover ratio? (Select all that apply.) a. an increase in the demand for the company's products b. a decrease in cost of goods sold c. a decrease in total inventory

a & c: an increase in the demand for the company's products & a decrease in total inventory

Probes, Inc. wrote down its inventory to the lower replacement value. The effect on Probes' accounting equation includes a(n) _____. (Select all that apply.) a. decrease in stockholders' equity b. increase in assets c. decrease in assets d. decrease in liabilities e. increase in stockholders' equity f. increase in liabilities

a & c: decrease in stockholders' equity & decrease in assets

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

a. beginning inventory + purchases + freight-in - purchase returns and allowances - purchase discounts

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest _____. a. channel stuffing b. an investment opportunity c. cookie jar accounting

a. channel stuffing

Which step must happen first when determining cost of goods sold using a periodic inventory system? a. count the number of units on hand b. compute the dollar value of the ending inventory balance c. compute and record cost of goods sold

a. count the number of units on hand

A high receivables turnover ratio is a sign of a company's _____. a. effectiveness in granting and collecting credit b. weakness in granting and collecting credit c. profitability

a. effectiveness in granting and collecting credit

Among the new requirements of SOX is those who willfully misrepresent financial results _______. a. face stiff fines and possible jail sentence b. in automatic imprisonment c. face stiff fines but no jail time d. are tried by the SOX

a. face stiff fines and possible jail sentence

An arrangement where receivables are sold to another company for immediate cash is called _____. a. factoring b. leasing c. depreciating d. renting

a. factoring

What does FOB shipping point mean? a. goods are owned by the buyer when they leave the seller's place of business b. goods are owned by the buyer as soon as they arrive at the buyer's place of business c. goods are owned by the buyer as soon as the sales contract is signed

a. goods are owned by the buyer when they leave the seller's place of business

Which of the following is merchandise inventory? a. goods held for sale in the normal course of business b. office supplies that a company plans to use in the next few months c. equipment used to manufacture products which will be sold later d. raw materials and work in process

a. goods held for sale in the normal course of business

When the allowance method is used, the entry to record write-off of an uncollectible account _____. a. has no effect on net income b. increases net income c. decreases net income

a. has no effect on net income

Sales transactions affect the _____. a. income statement and the balance sheet b. balance sheet and not the income statement c. income statement and not the balance sheet

a. income statement and the balance sheet

How should the seller of a bundle sale for $8,000 be recorded when the sale involves the delivery of a copier machine and a one-year service agreement? The seller must _____ and recognize the revenue _____. a. split the $8,000 between the product and service contract; for the product when delivered and the service when performed b. not split the $8,000; of $8,000 after the service is performed c. not split the $8,000; of $8,000 when the product is delivered d. not record the event; until the cash has been received

a. split the $8,000 between the product and service contract; for the product when delivered and the service when performed

Since accounting numbers, such as the allowance for doubtful accounts balance, are based on estimates, financial statements are _____. a. susceptible to management manipulation b. reliable, but not relevant c. free from errors

a. susceptible to management manipulation

Bank reconciliations are needed to reconcile for _____. (Select all that apply.) a. tax purposes b. outstanding checks c. deposits that are included in both the bank and the books d. deposits in transit

b & d: outstanding checks & deposits in transit

The bank will show a customer's withdrawal as a _____. a. debit, because cash is an asset b. debit, because a withdrawal decreases its liability from the bank's point of view c. credit, because a withdrawal increases its liability from the bank's point of view d. credit, because cash is an asset

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

Sales discounts should appear in the financial statements as a(n) _____. a. operating expense b. deduction from sales c. addition to sales d. part of current liabilities e. addition to inventory

b. deduction from sales

How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory? a. the differences between the costs and market values of each item is determined and any increases in value will offset any decreases b. only the items that have market values lower than the costs will be written down c. only the items that have costs lower than market values will be written down

b. only the items that have market values lower than the costs will be written down

Which inventory system records a change in the inventory account every time goods are bought, sold or returned? a. goods available b. perpetual c. FOB destination d. periodic e. FOB shipping point

b. perpetual

When analyzing a company's inventory turnover ratio, it is more important and more meaningful to compare the ratio with _____. a. other companies' ratios b. prior years' ratios for the company c. other industries' ratios

b. prior years' ratios for the company

The inventory account may be credited for _____. a. purchases on account b. purchase returns and allowances c. payment of inventory purchased on account d. freight-in

b. purchase returns and allowances

If the purchaser of merchandise debited inventory and credited cash for transportation costs, _____. a. it made a mistake because transportation costs are not added to inventory, they should be expensed as freight-out expense b. the terms of sale were FOB shipping point c. it was reimbursed for transportation costs paid in advance d. it made a mistake because transportation costs are not added to inventory, they should be expensed ad freight-in expense

b. the terms of the sale were FOB shipping point

Using the allowance method, bad debt expense is recorded _____. a. when a company writes off its collective receivables b. when the company defaults on its notes payable c. as an estimate in the period of the related credit sales d. when the specific customer is known to be uncollectible

c. as an estimate in the period of the related credit sales

What are the potential drawbacks of speeding up collections of receivables? (Select all that apply.) a. the accounts receivable turnover will be lower because the accounts receivable balance higher b. none, as it is the business' money c. customers may get annoyed and take their business elsewhere d. hounding customers to pay if their receivables are past due is time-consuming and costly

c & d: customers may get annoyed and take their business elsewhere & hounding customers to pay if their receivables are past due is time-consuming and costly

The complexity that arises from a bundle sale of a product and service contract together for a single price is the seller _____. (Select all that apply.) a. has no way of splitting the price thus record the revenue as one bundle when the product is delivered b. must wait until both the product and service obligation have been satisfied in order to record the revenue c. fulfills its performance obligations at different times d. has to determine how to split the price

c & d: fulfills its performance obligations at different times & has to determine how to split the price

Which of the following may occur with a higher inventory turnover ratio? (Select all that apply.) a. increase in sales allowances b. reduction in bad debt expense c. reduction in obsolescence d. reduction in inventory storage costs

c & d: reduction in obsolescence & reduction in inventory storage costs

The journal entry to record $5.6 million in sales on account includes a _____. (Select all that apply.) a. debit to allowance for doubtful accounts of $5.6 million b. credit to accounts payable for $5.6 million c. credit to sales revenue of $5.6 million d. debit to cash of $5.6 million e. debit to accounts receivable of $5.6 million

c & e: credit to sales revenue of $5.6 million & debit to accounts receivable of $5.6 million

The direct write-off method is not allowed under GAAP because it violates the _____. a. revenue recognition principle b. sales method c. expense recognition (matching) principle d. aging principle e. cost principle

c. expense recognition (matching) principle

Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act? a. reduce opportunities for fraud b. encourage good character c. counteract incentives for fraud d. conceal fraud

d. conceal fraud

Under a perpetual inventory system, the entry to record the return of goods you had previously purchased on account was recorded with a debit to accounts payable and a credit to inventory. The entry is _____. a. incorrect and will cause liabilities to be overstated b. incorrect and will cause assets to be overstated c. incorrect and will cause assets to be understated d. correct

d. correct

What effect does the inventory costing method have on the income statement? The inventory methods affects the amount of the _____. a. sales, cost of goods sold, gross profit, income tax expense and net income b. sales, cost of goods sold and gross profit and does not affect on income tax expense c. cost of goods sold and gross profit only d. cost of goods sold, gross profit, income from operations, income before income tax expense, income tax expense and net income

d. cost of goods sold, gross profit, income from operations, income before income tax expense, income tax expense and net income

To find a description of the inventory accounting method used by a company, you need to look at the _____. a. bottom section of the balance sheet and income statement b. income statement c. balance sheet d. notes to the financial statements

d. notes to the financial statements