Accounting Chapter 5 LearnSmart

The cash amount reported as an asset on the balance sheet includes: (Select all that apply) - Money on hand in petty cash funds - IOUs from credit worthy customers - Supplies on hand - Undeposited receipts including checks - Savings account balances - Checking account balances

- Money on hand in petty cash funds - Undeposited receipts including checks - Savings account balances - Checking account balances

Expenses that could be treated as prepaid and included in current assets include: (Select all that apply) - Rent - Advertising - Postage - Office supplies - Insurance - Furniture - Research and development

- Rent - Postage - Office supplies - Insurance

The internal control process is designed to provide a reasonable assurance that each of the following objectives are achieved: (Select all that apply) - The reliability of the organization's financial reporting - The organization's compliance with applicable laws and regulations - The organization's commitment to high levels of social responsibility - The organization's profitability and debt paying ability - The effectiveness and efficiency of the operations of the organization.

- The reliability of the organization's financial reporting - The organization's compliance with applicable laws and regulations - The effectiveness and efficiency of the operations of the organization.

Regarding the balance sheet presentation of accounts receivable: (Select all that apply) - The allowance for bad debts is added to accounts receivable - The allowance for Bad Debts accounts represents accounts written off during the year - "Net accounts receivable" represents the balance of an asset account less the balance of a contra asset account - "Net accounts receivable" is the net realizable value reported on the balance sheet - The allowance for bad debts is subtracted from accounts receivable

- "Net accounts receivable" represents the balance of an asset account less the balance of a contra asset account - "Net accounts receivable" is the net realizable value reported on the balance sheet - The allowance for bad debts is subtracted from accounts receivable

In the bank reconciliation process, errors are:

- Either added or subtracted from the bank's balance, if the error was made by the bank - Either added or subtracted from the company's book balance, if the error was made by the company

The cost of an inventory item is released to the income statement as an: (Select all that apply) - Expense when the product is purchased - Expense when the product is sold - Expense when the product is lost or stolen - Expense when the product becomes worthless - Revenue when the product is sold - Asset when the product is purchased

- Expense when the product is sold - Expense when the product is lost or stolen - Expense when the product becomes worthless

Which of the following are alternative cost flow assumptions? (Select all that apply) - Percentage of sales - Straight-line - First-in, first-out (FIFO) - Weighted-average

- First-in, first-out (FIFO) - Weighted-average

The effects on the financial statements of accruing interest on notes receivable include: (Select all that apply) - Increase to assets - Increase to liabilities - Increase to expenses - Increase to revenues - Increase to net income

- Increase to assets - Increase to revenues - Increase to net income

In a bank reconciliation: (Select all that apply)

- Interest earned is added to the company's book balance - Service charges are subtracted from the company's book balance - Deposits in transit are added to the bank's balance - NSF checks are subtracted from the company's book balance

The "market" in the lower of cost of market valuation is generally:

The replacement cost of the inventory

Identification of security pledged by the borrower to support the loan is known as _____.

collateral

The beginning inventory for ProKnows, Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each and during May an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the FIFO cost flow assumption, cost of goods sold:

= (20 @ $4) + (40 @ $5) + (10 @ $6) = $80 + $200 + $60 = $340

Purchases = $144,000, Cost of goods available for sale = $200,000, and Ending inventory = $40,000. Thus:

Beginning inventory = $56,000, and Cost of goods sold = $160,000

If ending inventory was understated at the end of Year 1, but counted correctly at the end of Year 2, and this error was not discovered until sometime in Year 3, then:

Cost of goods sold was overstated in Year 1 and understated in Year 2, but the error would have self-corrected in total.

The amounts reported for ending inventory and cost of goods sold will differ depending on whether the weighted-average, FIFO, or LIFO cost flow assumption is used by the reporting company because the _________ per unit _______ changes over time.

Cost; purchased

In the bank reconciliation process, errors are:

Either added or subtracted from the bank's balance or the company's book balance

Prepaid expenses such as insurance premiums and lease (rental) payments that have been paid in advance should be treated as _____ until the benefits associated with the prepayment are received and thus the ______ has been _____.

Assets; Expense; Incurred

Financial controls:

Are related to the concept of separation of duties

Bank service charges:

Are subtracted from the company' s book balance

The entries to record the sale of inventory are:

Dr. Accounts Receivable (or Cash) cr. Sales Dr. Cost of Goods Sold cr. Inventory

The entry to record the purchase of inventory is:

Dr. Cost of Goods Sold cr. Inventory

The entry to record the purchase of inventory is:

Dr. Inventory cr. Accounts Payable (or cash)

The cost of an inventory item is released to the income statement as an:

Expense when the product is sold (or becomes worthless or is lost or stolen)

In times of rising prices, LIFO results in:

Lower ending inventory and higher cost of good sold than FIFO

Inventory is reported on the balance sheet at:

Lower of cost or market value

In times of rising prices, inventory profits (or phantom profits) are said to occur under the FIFO cost flow assumption. This occurs because under FIFO, the release of ______, ______ costs to the income statement results in _____ profits than if current costs were to be recognized.

Older; lower; higher

The LIFO cost flow assumption results in the most ________ costs being transferred to cost of goods sold. In times of rising prices, the costs transferred cost of goods sold under LIFO will therefore be ______ than the costs transferred to cost of goods sold under FIFO.

Recent; higher

The amounts reported for ending inventory and cost of goods sold will differ depending on whether the weighted-average, FIFO, or LIFO cost flow assumption is used by the reporting company. What is the primary reason for such differences in reported amounts?

The purchase price (i.e., cost) per unit of inventory items changes over time

Under the FIFO method, the amount reported as ending inventory:

Will always be the same whether a periodic or perpetual system is used

Under the LIFO method, the amount reported as cost of goods sold:

Will vary under the periodic and perpetual systems because the last-in cost is redefined each time a purchase transaction occurs