Acct 2301 DBU Connect exam 1

Interim financial statements:

Are statements prepared for periods of less than one year.

An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

Bank reconciliation.

The full disclosure principle:

Prescribes that the notes to the financial statements report the change from one inventory valuation method to another.

Preparing a bank reconciliation on a monthly basis is an example of:

Protecting assets by proving the accuracy of cash records.

Which of the following accounts is used in the periodic inventory system but not used in the perpetual inventory system?

Purchases

The net method of recording purchases refers to recording:

Purchases at the invoice price less any cash discounts.

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Recognizes that a customer returned merchandise and/or received an allowance.

The impact of technology on internal controls includes:

Reduced processing errors.

Sales returns:

Refer to merchandise that customers return to the seller after the sale.

Which of the following accounts would be closed at the end of the accounting period with a debit?

Sales.

The principles of internal control include:

Separate recordkeeping from custody of assets.

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

Single-step income statement.

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

Specific identification and FIFO

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

Specific identification method.

A bank statement provided by the bank includes:

The beginning and the ending balance of the depositor's account.

The three parties involved with a check are:

The maker, the payee, and the bank.

The current period's ending inventory is:

The next period's beginning inventory.

Cash equivalents:

Are short-term, highly liquid investment assets.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:

$1,568.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals:

$1,600.

Garza Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Garza Company's net sales equals:

$129,800.

Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on May 31, its Cash account shows a debit balance of $17,025. Clayborn's May bank statement shows $15,800 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit $ 5,200 Outstanding checks $ 4,600 Bank service fees, not yet recorded by company $ 25 A NSF check from a customer, not yet recorded by the company $ 600

$16,400

Prentice Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal:

$172,550.

Fragment Company is a wholesaler that sells merchandise in large quantities. Its catalog indicates a list price of $300 per unit on a particular product and a 40% trade discount is offered for quantity purchases of 50 units or more. The cost of shipping the merchandise is $7 per unit under terms FOB shipping point. If a customer purchases 100 units of this product, what is the amount of sales revenue that Fragment will record from this sale?

$18,000

Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by check. Ryan's June bank statement shows $18,361 on deposit in the bank. Ryan's comparison of the bank statement to its cash account revealed the following: Deposit in transit 1,450 Outstanding checks 837 Additionally, a $29 check written and recorded by the company correctly was recorded by the bank as a $92 deduction. The adjusted cash balance per the bank records should be:

$19,037

A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

$217,500.

Meng Co. maintains a $300 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $80 for office supplies, $160 for merchandise inventory, and $20 for miscellaneous expenses. There is a cash shortage of $8. Based on this information, the amount of cash in the fund before the replenishment is:

$32.

Jasper Company is a wholesaler that buys merchandise in large quantities. Its supplier's catalog indicates a list price of $500 per unit on merchandise Jasper intends to purchase, and offers a 30% trade discount for large quantity purchases. The cost of shipping for the merchandise is $7 per unit. Jasper's total purchase price per unit will be:

$357

Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. June 1 Beginning inventory 15 units at $20 each June 15 Sale of 6 units for $50 each June 29 Purchase 8 units at $25 each

$380

A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:

$4,000.50.

A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

$417,000.

Cushman Company had $800,000 in net sales, $350,000 in gross profit, and $200,000 in operating expenses. Cost of goods sold equals:

$450,000.

Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000, credit terms 2/10, n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000. Avanti paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that should be assigned to the inventory.

$52,000

Easton Co. deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on June 30, its Cash account shows a debit balance of $60,209. Easton's June bank statement shows $58,349 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit $ 3,800 Outstanding checks $ 1,925 Check printing fee, not yet recorded by company $ 15 Interest earned on account, not yet recorded by the company $ 30

$60,224

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:

$8,167.50.

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The amount of the cash paid on August 26 equals:

$8,250.00.

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

$8,924.

Pelcher Co. maintains a $400 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $110 for office supplies, $140 for merchandise inventory, and $70 for miscellaneous expenses. There is a cash overage of $4. Based on this information, the amount of cash in the fund before the replenishment is:

$84.

KLM Corporation's quick assets are $5,888,000, its current assets are $11,700,000 and its current liabilities are $8,000,000. Its acid-test ratio equals:

0.74.

The credit terms 2/10, n/30 are interpreted as:

2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

Sandoval needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and are not sellable. Another 2,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,000 units at a consignee's location. How many units should Sandoval include in its year-end inventory?

23,000

Clayborn Company' bank reconciliation as of May 31 is shown below. Bank balance $ 15,800 Book balance $ 17,025 + Deposit in transit 5,200 Bank service fees -25 - Outstanding checks -4,600 NSF returned -600 Adjusted bank balance $ 16,400 Adjusted book balance $ 16,400 One of the adjusting journal entries that Clayborn must record as a result of the bank reconciliation includes:

A credit to Cash of $600

The entry to establish a petty cash fund includes:

A debit to Petty Cash and a credit to Cash.

A trade discount is:

A reduction in selling price below the list price.

On May 1, Shilling Company sold merchandise in the amount of $5,800 to Anders, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Shilling uses the perpetual inventory system and the gross method. The journal entry or entries that Shilling will make on May 1 is:

Accounts receivable Sales Cost of goods sold Merchandise Inventory

If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:

Add the deposit to the bank statement balance.

Merchandise inventory includes:

All goods owned by a company and held for sale.

Damaged and obsolete goods that can be sold:

Are included in inventory at their net realizable value.

Physical counts of inventory:

Are necessary to adjust the Inventory account to the actual inventory available.

Cash equivalents:

Are readily converted to a known cash amount.

On February 3, Smart Company sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

Cash Sales discounts 116 Accounts receivable 5800

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

Cash Over and Short.

Quick assets are defined as:

Cash, short-term investments, and current receivables.

Multiple-step income statements:

Contain more detail than a simple listing of revenues and expenses.

Costs included in the Merchandise Inventory account can include all of the following except:

Damaged inventory that cannot be sold.

At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash in the register is $1,010. The proper entry to account for this excess is:

Debit Cash $1,010; credit Sales $1,000; credit Cash Over and Short $10.

The understatement of the ending inventory balance causes:

Cost of goods sold to be overstated and net income to be understated.

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

Counters of inventory should be those who are responsible for the inventory.

In applying the lower of cost or market method to inventory valuation, market is defined as:

Current replacement cost.

Cash, not including cash equivalents, includes:

Customer checks, cashier checks, and money orders.

Decisions management must make in accounting for inventory cost include all of the following except:

Customer demand for inventory.

Franklin Company's bank reconciliation as of August 31 is shown below. Bank balance $14,237 Book balance $13,162 + Deposit in transit 4,500 Bank service fees -50 - Outstanding checks -3,900 Note collected 1,725 Adjusted bank balance $14,837 Adjusted book balance $14,837 The adjusting journal entries that Clayborn must record as a result of the bank reconciliation include:

Debit Cash $1,725; credit Notes Receivable $1,725.

Spencer Co. decides to establish a petty cash fund with a beginning balance of $200. The company decides that any purchase under $25 can be processed through petty cash instead of the voucher system. The journal entry to record establishing the account is:

Debit Petty Cash $200 and credit Cash $200.

Havermill Co. establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $73 for Office Supplies, $137 for merchandise inventory, and $22 for miscellaneous expenses. The fund has a balance of $18. On October 1, the accountant determines that the fund should be increased by $50. The journal entry to record the establishment of the fund on September 1 is:

Debit Petty Cash $250; credit Cash $250.

If a check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period, in preparing this period's reconciliation, the amount of this check should be:

Deducted from the bank balance of cash as an outstanding check.

On a bank reconciliation, an unrecorded debit memorandum for printing checks is:

Deducted from the book balance of cash.

On a bank reconciliation, the amount of an unrecorded bank service charge should be:

Deducted from the book balance of cash.

A voucher system is a set of procedures and approvals:

Designed to control cash disbursements and the acceptance of obligations.

A merchandiser

Earns net income by buying and selling merchandise.

Two clerks sharing the same cash register is a violation of which internal control principle?

Establish responsibilities.

Internal control policies and procedures have limitations not including:

Establishing responsibilities.

When a petty cash fund is in use:

Expenses paid with petty cash are recorded when the fund is replenished.

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

FIFO method.

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is:

FIFO.

Which of the following procedures would weaken control over cash receipts that arrive through the mail?

For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank.

The amount recorded for merchandise inventory includes all of the following except:

Freight costs paid by the seller.

Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called:

General and administrative expenses.

Which of the following is not one of the policies and procedures that make up an internal control system?

Guarantee a return to investors.

All of the following statements regarding inventory shrinkage are true except:

Inventory shrinkage is recognized by debiting an operating expense.

The itemized statement of goods prepared by a vendor listing the customer's name, items sold, sales prices, and terms of the sale is called the:

Invoice.

Merchandise inventory:

Is a current asset.

Cost of goods sold:

Is the term used for the expense of buying and preparing merchandise for sale.

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

LIFO method.

Generally accepted accounting principles require that the inventory of a company be reported at:

Lower of cost or market.

A properly designed internal control system:

Lowers the company's risk of loss.

Principles of internal control include all of the following except:

Maintaining security by having one person track and record assets.

Beginning inventory plus net purchases is

Merchandise (goods) available for sale.

On May 1, Anders Company purchased merchandise in the amount of $5,800 from Shilling, with credit terms of 2/10, n/30. Anders uses the perpetual inventory system and the gross method. The journal entry or entries that Anders will make on May 1 is:

Merchandise Inventory 5,800 Accounts payable 5,800

A company's internal control system:

Monitors company and employee performance.

Cash equivalents meet all of the following criteria except:

More liquid than cash.

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

Net sales.

Sales less sales discounts less sales returns and allowances equals:

Net sales.

A company uses the perpetual inventory system and recorded the following entry: Accounts Payable 2,500 Merchandise Inventory 50 Cash 2,450 This entry reflects a:

Payment of the account payable less a 2% cash discount taken.

The consistency concept:

Prescribes a company use the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting.

All of the following statements regarding sales returns and allowances are true except:

There is no relationship between sales returns and allowances and the possibility of lost future sales.

The inventory valuation method that tends to smooth out erratic changes in costs is:

Weighted average.

Goods in transit are included in a purchaser's inventory:

When the purchaser is responsible for paying freight charges.

Outstanding checks refer to checks that have been:

Written, recorded on the company books, sent to the payee, but not yet paid by the bank.

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between

ending inventory and cost of goods sold.