ACC 210 Quiz 4 - 6

Wolfpack Corp. uses the allowance method for estimating is uncollectible accounts receivable. On March 18, it specifically wrote-off the receivable balance of one of its customers. This customer owed Wolfpack $1,000. Complete the journal entry to record the specific write-off.

Debit: Allowance for Uncollectible Accounts for $1,000 Credit: Accounts Receivable for $1,000

For each of the following statements, indicate whether the correct answer is FIFO, LIFO, or neither. Pay special attention to whether prices are rising or declining. When inventory costs are declining, this method yields the lowest cost of ending inventory.

FIFO

For each of the following statements, indicate whether the correct answer is FIFO, LIFO, or neither. Pay special attention to whether prices are rising or declining. When inventory costs are rising, this method yields the lowest cost of goods sold.

FIFO

True or False: After a company specifically writes off a customer's account receivable as being uncollectible, it may not subsequently collect the cash from the customer.

False

True or False: One of the disadvantages of the perpetual inventory system is the company's decreased ability to keep better records with respect to the quantity and cost of the inventory on hand at a given point in time.

False

True or False: The direct write-off method is an application of GAAP.

False

True or False: The ethical tone set by a company's top management rarely has any effect on a company's internal control environment.

False

True or False: The amount commonly referred to as "net purchases" is calculated as follows: Purchases - Freight In - Purchase Discounts + Purchase Returns and Allowances.

False Net Purchases = Purchases + Freight In - Purchase Discounts - Purchase Returns and Allowances

Complete the following sentence: _______________ occurs when inventory costs are rising over time whereas ______________ occurs when inventory costs are declining over time.

Inflation; deflation

For each of the following statements, indicate whether the correct answer is FIFO, LIFO, or neither. Pay special attention to whether prices are rising or declining. When inventory costs are declining, this method yields the highest gross profit.

LIFO

For each of the following statements, indicate whether the correct answer is FIFO, LIFO, or neither. Pay special attention to whether prices are rising or declining. When inventory costs are rising, this method yields the lowest income tax expense.

LIFO

If a company fails to record accrued interest revenue at the end of its fiscal year, all else being equal, what are the effects on its net income, total assets, total liabilities, and total stockholders' equity?

Net Income - understated Total Assets - understated Total Liabilities - no effect Total Stockholders' equity - understated

If a company underestimates its bad debts expense for the year, all else being equal, what are the effects on its net income, total assets, total liabilities, and total stockholders' equity?

Net income - overstated Total assets - overstated Total liabilities - no effect Total Stockholders' Equity - overstated

True or False: A company is generally not permitted to switch its inventory costing method from year to year.

True

True or False: If a company uses the FIFO method for financial statement purposes, it may use the FIFO method for income tax purposes as well.

True

True or False: Notes and accounts receivables which arise from sales transactions are often called trade receivables.

True

True or False: One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's corporate executives to personally certify the company's financial statements and its disclosures.

True

True or False: The Sarbanes-Oxley Act applies to all companies required to file their financial statements with the SEC.

True

Which of the following is an examples of a contra-asset account? (check all that apply) a. Allowance for Uncollectible Accounts b. Interest Receivable c. Interest Revenue d. Accounts Receivable e. Bad Debts Expense

a. Allowance for Uncollectible Accounts

On a multi-step income statement, which of the following account balances would normally appear above the "operating income" subtotal line? (check all that apply) a. Salaries expense b. Interest expense c. Sales revenue d. Gain on sale of investment e. Interest revenue f. Cost of goods sold

a. Salaries expense c. Sales revenue f. Cost of goods sold

Lopez Corp. and Gilmartin Inc. are in the same industry and are of similar size. During 20X5, Lopez and Gilmartin had inventory turnover ratios of 9 times and 12 times, respectively. Based on this information, which of the following statements is most likely true when comparing these two companies? a. Gilmartin's customers are quicker at paying off their accounts receivable. b. Lopez's customers are quicker at paying off their accounts receivable. c. Gilmartin is better at managing its inventory. d. Lopez is better at managing its inventory.

c. Gilmartin is better at managing its inventory.

Below is a list of common control activities. Which of these activities would be considered an example of a detective control activity rather than a preventive control activity? (check all that apply) a. E-commerce controls b. Separation of duties c. Reconciliations d. Employee management e. Performance reviews f. Audits g. Proper authorization h. Physical controls

c. Reconciliations e. Performance reviews f. Audits

Which financial statement summarizes a company's cash receipts and cash disbursements for a period of time? a. Balance Sheet b. Income Statement c. Statement of Cash Flows d. Statement of Stockholders' Equity

c. Statement of Cash Flows

Below is a list of various procedures a local retailer has regarding its cash receipts. Which control has the greatest change of leading to errors or fraud? a. The company deposits checks and cash on hand into the bank account daily. b. The company verifies the bank deposit slip against the accounting records. c. The company discourages its employees from accepting credit or debit cards from customers. d. The company opens its mail daily and makes a list of checks received.

c. The company discourages its employees from accepting credit or debit cards from customers.

On its bank reconciliation for the month of December, Pack Corp. noted it had a NSF check from a customer for $100. Question: In Pack Corp.'s month-end journal entry to record this reconciling item, which of the following is (are) true? (check all that apply) Select one or more: a. The "Sales Revenue" account should be debited $100. b. The "Accounts Payable" account should be credited $100. c. The "Sales Revenue" account should be credited $100. d. The "Accounts Receivable" account should be debited $100. e. The "Accounts Payable" account should be debited $100. f. The "Accounts Receivable" account should be credited $100.

d. The "Accounts Receivable" account should be debited $100.

At the beginning of 20X6, Turner Corp.'s "Allowance for Uncollectible Accounts" had a credit balance of $10,000. During 20X6, account receivable balances totaling $12,000 were specifically written-off as being uncollectible. As a result of the above, which of the following statements is true immediately after these specific write-offs? a. The "Allowance for Uncollectible Accounts" account has a credit balance of $22,000 which implies that last year's estimate of bad debts was underestimated (too low). b. The "Allowance for Uncollectible Accounts" account has a debit balance of $2,000 which implies that last year's estimate of bad debts was overestimated (too high). c. The "Allowance for Uncollectible Accounts" account has a credit balance of $22,000 which implies that last year's estimate of bad debts was overestimated (too high). d. The "Allowance for Uncollectible Accounts" account has a debit balance of $2,000 which implies that last year's estimate of bad debts was underestimated (too low).

d. The "Allowance for Uncollectible Accounts" account has a debit balance of $2,000 which implies that last year's estimate of bad debts was underestimated (too low).

The process of estimating bad debts and recording the estimate in the same period as the sales associated with those accounts receivables in an application of which accounting principle? a. historical cost principle b. revenue recognition c. full disclosure principle d. expense recognition principle (matching principle)

d. expense recognition principle (matching principle)

Fill-in-the-blank: All else being equal, as a company's inventory turnover ratio increases, the average number of days in inventory will _______________.

decrease

When inventory is shipped FOB destination and we are doing the accounting from the standpoint of the seller of these goods, title passes at the ___________ ___________ point and our company ______________ be responsible for the freight charges.

destination point; should

Below is a list of various procedures a local retailer has regarding its cash disbursements. Which procedure has the greatest chance of leading to errors or fraud? a. The company reconciles the debit and credit card statements against the purchase receipts. b. The company requires all cash expenditures to be authorized before the cash disbursement. c. The company does not permit employees who are allowed to make cash disbursements to also be in charge of cash receipts. d. The company makes sure its checks are numbered sequentially and it uses them in sequential order. e. The company uses its petty cash only for large cash disbursements.

e. The company uses it petty cash for large cash disbursements.

For each scenario being described, indicate the most likely control activity being described. When an employee is first hired, he or she is given clear instructions regarding the company's internal control procedures as well as how to report any irregular activities the employee discovers.

employee management

For each of the following transactions, indicate whether the cash flow is an operating, investing, or financing activity for purposes of preparing a statement of cash flows. In addition, be specific with respect to whether the activity leads to an inflow of cash or an outflow of cash. A company borrows money from a bank by signing a note payable.

financing activity - inflow of cash

For each of the following transactions, indicate whether the cash flow is an operating, investing, or financing activity for purposes of preparing a statement of cash flows. In addition, be specific with respect to whether the activity leads to an inflow of cash or an outflow of cash. A company pays back the principal on a bank loan evidenced by a promissory note.

financing activity - outflow of cash

Fill-in-the-blank: All else being equal, as a company's accounts receivable turnover ratio decreases, the average collection period for its accounts receivable in terms of days _________________.

increases

For each of the following transactions, indicate whether the cash flow is an operating, investing, or financing activity for purposes of preparing a statement of cash flows. In addition, be specific with respect to whether the activity leads to an inflow of cash or an outflow of cash. A company sells land previously used in its business for cash.

investing activity - inflow of cash

For each of the following transactions, indicate whether the cash flow is an operating, investing, or financing activity for purposes of preparing a statement of cash flows. In addition, be specific with respect to whether the activity leads to an inflow of cash or an outflow of cash. A company makes a cash purchase of land to be used in its business.

investing activity - outflow of cash

For each of the following statements, indicate whether the correct answer is FIFO, LIFO, or neither. Pay special attention to whether prices are rising or declining. When inventory costs are rising, this method yields the lowest sales revenue.

neither

For each of the following transactions, indicate whether the cash flow is an operating, investing, or financing activity for purposes of preparing a statement of cash flows. In addition, be specific with respect to whether the activity leads to an inflow of cash or an outflow of cash. A company collects cash from a sale of inventory.

operating activity - inflow of cash

For each of the following transactions, indicate whether the cash flow is an operating, investing, or financing activity for purposes of preparing a statement of cash flows. In addition, be specific with respect to whether the activity leads to an inflow of cash or an outflow of cash. A company pays for three-month's worth of rent in advance.

operating activity - outflow of cash

For each of the following statements regarding inventory systems, choose whether the statement applies to just the periodic system, just the perpetual system, or to both systems. This inventory system computes and records cost of goods sold only at the end of the period.

periodic system only

For each of the following statements regarding inventory systems, choose whether the statement applies to just the periodic system, just the perpetual system, or to both systems. This inventory system computes and records cost of goods sold at the time of sale.

perpetual system only

For each scenario being described, indicate the most likely control activity being described. Most inventory items are fitted with a tag which can only be removed by a salesperson when the inventory item is sold.

physical controls

For each scenario being described, indicate the most likely control activity being described. The cashier is required to call for assistance when a customer wishes to pay for their order using a check in excess of $300.

proper authorization

Fill-in-the-blank with the correct term. When a company is granted a discount for its prompt payment of inventory previously purchased on account, the discount is called a _________________ ________________.

purchase discount

For each scenario being described, indicate the most likely control activity being described. The company physically counts its inventory at the end of each year and compares the physical count to its accounting records.

reconciliations

Fill-in-the-blank with the correct term. When a company grants a discount to its customer for the customer's prompt payment related to a previous sale of inventory on account, the discount is called a _______________ ________________.

sales discount

For each scenario being described, indicate the most likely control activity being described. The clothing buyer places inventory orders but a different person pays for the order.

separation of duties

For each of the following statements regarding inventory systems, choose whether the statement applies to just the periodic system, just the perpetual system, or to both systems. This inventory system computes and records sales revenue at the time of sale.

both perpetual system and periodic system

For each of the following statements regarding inventory systems, choose whether the statement applies to just the periodic system, just the perpetual system, or to both systems. This inventory system requires a physical inventory count to be made at least once during the year.

both perpetual system and periodic system

For financial reporting purposing, which of the following items should be included in the "Cash and Cash Equivalents" total on the balance sheet? (check all that apply) Select one or more: a. Short-term investments with a maturity date between three months and six months from the company's balance sheet date b. Inventory which the company currently owns but expects to sell for cash within one day of the balance sheet date c. Checks received from customers but not yet deposited as of the balance sheet date d. Checking account balances e. Short-term investments with a maturity date less than three months from the date of purchase f. Currency and coins g. Savings account balances h. Note receivable balances with a due date of less than three months from the balance sheet date i. NSF check from a customer j. Accounts receivable balances with a due date of less than one month from the balance sheet date

a. Short term investments with a maturity date between three months and six months from the company's balance sheet date c. Checks received from customers but not yet deposited as of the balance sheet date d. Checking account balances e. Short-term investments with a maturity date less than three months from the date of purchase f. Currency and coins g. Savings account balances

On its bank reconciliation for the month of December, Pack Corp. noted that it had made an accounting error. It recorded the payment for supplies previously purchased on account as $59 instead of the actual amount of $95. Question: In Pack Corp.'s month-end journal entry to record this reconciling item, which of the following is true? a. The "Accounts Payable" account should be debited for $36. b. The "Accounts Receivable" account should be debited for $36. c. The "Supplies" account should be debited for $36. d. The "Accounts Payable" account should be credited for $36. e. The "Supplies" account should be credited for $36. f. The "Accounts Receivable" account should be credited for $36.

a. The "Accounts Payable" account should be debited for $36.

Whereas a merchandiser usually has one inventory account, a manufacturer has which of the following? (check all that apply) a. Work-in-progress inventory b. Finished goods inventory c. Raw materials inventory

a. Work-in-progress inventory b. Finished goods inventory c. Raw materials inventory

Companies should have internal control procedures in place to: (check all that apply) a. improve the accuracy and reliability of accounting information. b. safeguard the company's assets.

a. improve the accuracy and reliability of accounting information. b. safeguard the company's assets.

As a customer's account receivable balance is specifically written-off due to its being uncollectible, what is the effect on the company's net accounts receivable amount? a. no effect b. a decrease c. an increase

a. no effect

From a merchandiser's perspective, the purchase and sale of its inventory is an example of which type of business activity? a. operating b. financing c. investing

a. operating

Which company asset is most often involved with fraudulent activities? a. Equipment b. Cash c. Prepaid Insurance d. Inventory e. Supplies f. Accounts Receivable

b. Cash

Indicate which of the following statements is TRUE with respect to internal controls. (check all that apply) Select one or more: a. Fraud committed by lower-level employees is more difficult to detect because those employees more often have the ability to override internal control procedures. b. Collusion refers to the act of two or more individual circumventing internal control procedures. c. Historically, employee tips have been the most common means of detecting employee fraud. d. The components of internal control are built on the foundation of the ethical tone set by the company's outside auditors.

b. Collusion refers to the act of two or more individual circumventing internal control procedures. c. Historically, employee tips have been the most common means of detecting employee fraud.

Which element of the fraud triangle does a company have the greatest influence and ability to eliminate? a. Motive (or pressure) b. Opportunity c. Rationalization

b. Opportunity

Which of the following is an example of a contra-revenue account? (Check all that apply) a. Interest Revenue b. Sales Returns and Allowances c. Accounts Receivable d. Cost of Goods Sold e. Bad Debt Expense f. Sales Discounts

b. Sales Returns and Allowances f. Sales Discounts

Which type of control activities are designed to keep error or fraud from occurring? a. preventative controls b. detective controls

b. detective controls