ACCT 251 Exam 2
Which of the following contributes to the importance of properly determining the cost of inventory and the cost of goods sold? -Cost of goods sold may be the largest expense on some companies' income statement -Inventory may be the largest asset on some companies' balance sheets -Inventory is commonly reported incorrectly -Cost of goods sold tends to be over or understated
-Cost of goods sold may be the largest expense on some companies' income statement -Inventory may be the largest asset on some companies' balance sheets
Which of the following responsibilities are separated in a good internal control system for cash disbursements? -Inventory control and accounts payable. -Cash disbursement documentation and the accounting recording function. -Check writing and check signing. -Payroll functions and accounts payable functions.
-Cash disbursement documentation and the accounting recording function. -Check writing and check signing.
Which of the following are internal controls for checks? -Checks for large amounts should require two signatures. -The person who handles cash receipts should also handle writing checks for purchases. -Checks should be sequentially prenumbered. -The employee who writes the check should reconcile the bank statement.
-Checks for large amounts should require two signatures. -Checks should be sequentially prenumbered.
Which of the following items are included in cash? -Checks from customers -Balance in checking accounts -Accounts receivable from customers -Currency and coins -Notes receivable from customers
-Checks from customers -Balance in checking accounts -Currency and coins
Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries? -Debit Bad Debt Expense -Credit to Accounts Receivable -Credit Allowance for Uncollectible Accounts -Debit to Allowance for Uncollectible Accounts
-Credit to Accounts Receivable -Debit to Allowance for Uncollectible Accounts
Clark uses the perpetual inventory system. Clark sells goods to a customer on account for $1,000. The cost of the goods sold was $700. Which of the following entries are required? -Debit Cost of Goods Sold $700; credit Net Income $300; credit Service Revenues $1,000 -Debit Cost of Goods Sold $700; credit Inventory $700 -Debit Cost of Goods Sold $1,000; credit Inventory $1,000 -Debit Accounts Receivable $1,000; credit Sales Revenue $1,000
-Debit Cost of Goods Sold $700; credit Inventory $700 -Debit Accounts Receivable $1,000; credit Sales Revenue $1,000
Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following? -Debit Sales Discount $2 -Credit Cash $100 -Debit Cash $100 -Credit Accounts Receivable $100 -Debit Cash $98
-Debit Sales Discount $2 -Credit Accounts Receivable $100 -Debit Cash $98
Which of the following entries affect a company's cash flows? -Debit rent expense; credit cash -Debit supplies; credit cash -Debit equipment; credit notes payable -Debit accounts receivable; credit revenue
-Debit rent expense; credit cash -Debit supplies; credit cash
What would cause a bank statement not to agree with the cash balance in the accounting records? -Deposits outstanding that have been recorded on the company's records, but not on the bank's. -The bank paid interest that the company has not recorded. -The company wrote checks that have cleared the bank. -The company made an error in recording a deposit. -The bank made an error in recording a deposit made by the company.
-Deposits outstanding that have been recorded on the company's records, but not on the bank's. -The bank paid interest that the company has not recorded. -The company made an error in recording a deposit. -The bank made an error in recording a deposit made by the company.
Which of the following methods are available for costing inventory? (Select all that apply.) -FIFO -NIFO -Weighted-average -Simple-average -LIFO -Specific identification
-FIFO -Weighted-average -LIFO -Specific identification
Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods. -Sales Revenue -Inventory -Purchases -Cost of Goods Sold
-Inventory -Cost of Goods Sold
The definition of inventory includes which of the following items? -Materials used currently in the production of goods to be sold -Items held for resale -Items currently in production for future sale -Items held for use or disposal
-Materials used currently in the production of goods to be sold -Items held for resale -Items currently in production for future sale
Which of the following are components of internal control? -Monitoring -Control environment -Control activities -Risk assessment -Accounting standards
-Monitoring -Control environment -Control activities -Risk assessment
Which of the following items will require a journal entry following a bank reconciliation? (Select all that apply.) -NSF checks -Outstanding checks -Notes collected by the bank -Deposits outstanding
-NSF checks -Notes collected by the bank
Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated? -Accepting credit cards and accepting cash -Opening the mail and deposit of checks in the bank -Depositing checks into the bank and recording receipts in the accounting records -Opening the mail and making a list of checks received
-Opening the mail and deposit of checks in the bank -Depositing checks into the bank and recording receipts in the accounting records
Which of the following are preventive controls? -Physical controls -Reconciliations -Separation of duties -Performance reviews
-Physical controls -Separation of duties
Which of the following accounts are typically reported in the balance sheet of a manufacturing company? -Cost of goods sold -Raw materials -Work in process -Finished goods
-Raw materials -Work in process -Finished goods
Which of the following are detective controls? -Physical controls -Reconciliations -Audits -Proper authorization -Performance reviews
-Reconciliations -Audits -Performance reviews
Which of the following steps are necessary to reconcile the bank balance and the cash account balance. -Record items that reconcile the bank's cash balance -Record items that reconcile the company's cash balance -Adjust the company's cash balance for items not in company records -Adjust bank's cash balance for items not in bank statement
-Record items that reconcile the company's cash balance -Adjust the company's cash balance for items not in company records -Adjust bank's cash balance for items not in bank statement
When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance? (Select all that apply.) -Service charges -Outstanding checks -Charges for NSF checks -Deposits outstanding
-Service charges -Charges for NSF checks
Which of the following methods are not used for inventory costing? (Select all that apply.) -Weighted-average -Specific identification -LIFO -Simple-average -NIFO -FIFO
-Simple-average -NIFO
FIFO
-The amount reported on the balance sheet approximates current cost of inventory.
LIFO
-The amount reported on the income statement approximately matches current cost with current revenue.
Which of the following represent reasons why managers closely monitor inventory levels? -To increase the average days in inventory. -To ensure that sufficient units are available. -To minimize costs of inventory write-downs due to obsolete inventory.
-To ensure that sufficient units are available. -To minimize costs of inventory write-downs due to obsolete inventory.
Which of the following may be important reasons for companies to hold large amounts of cash? (Select all that apply.) -To weather potential negative shocks in the business cycle -To earn a high return from holding cash -Allows company to act quickly to new opportunities -To pay employees in case of a bankruptcy
-To weather potential negative shocks in the business cycle -Allows company to act quickly to new opportunities
Paying by check helps a business to control cash when the ______. (Select all that apply.) -check is signed by an authorized manager -checks are deposited only at the company's bank -checks are prenumbered and written sequentially
-check is signed by an authorized manager -checks are prenumbered and written sequentially
Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.) -cost of goods sold. -inventory. -liabilities. -current assets.
-cost of goods sold. -inventory.
Abby Fashions sells a suit to a customer for $600 on account. The day after the sale, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record: -debit to Cash $60 -debit to Accounts Receivable $60 -credit to Accounts Receivable $60 -credit to Cash $60 -debit to Sales Allowances $60 -credit to Sales Allowances $60
-credit to Accounts Receivable $60 -debit to Sales Allowances $60
The journal entry to record bad debt expense includes: (Select all that apply.) -credit to allowance for uncollectible accounts -credit to bad debt expense -debit to allowance for uncollectible accounts -debit to bad debt expense
-credit to allowance for uncollectible accounts -debit to bad debt expense
"Net credit sales" refers to credit sales net of: -bad debt -discounts -allowances -returns
-discounts -allowances -returns
Which of the following items are readily available from an inventory account under the perpetual inventory system? -ending inventory balance -individual purchases -cost of units sold -freight-out -sales revenue -beginning inventory balance
-ending inventory balance -individual purchases -cost of units sold -beginning inventory balance
What comparative advantages do notes receivables possess compared to other receivables? (Select all that apply.) -increases sales -guarantees collectibility -higher likelihood of collectibility -interest-bearing
-higher likelihood of collectibility -interest-bearing
Purchasing inventory on account: -decreases assets -increases equity -increases liabilities -increases assets -decreases equity
-increases liabilities -increases assets
The three classifications on the statement of cash flows are cash flows from (Select all that apply.) -business activities. -investing activities. -financing activities. -discontinued activities. -operating activities.
-investing activities. -financing activities. -operating activities.
The three elements present in the fraud triangle are: -revenge -motive -greed -rationalization -opportunity
-motive -rationalization -opportunity
What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements? (Assume that the sales price is higher than the cost of inventory) -total assets decrease -net income increases -stockholders' equity decreases -stockholders' equity increases -total assets increase
-net income increases -stockholders' equity increases -total assets increase
Which of the following are common controls over cash receipts? (Select all that apply.) -opening mail daily and making a detailed list of checks received -having two different employees take custody of the checks and make the deposit -placing one trusted employee in charge of all cash-related activities -reducing the amount of total sales to customers
-opening mail daily and making a detailed list of checks received -having two different employees take custody of the checks and make the deposit
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? -payment of employee salaries -purchase of a building -retirement of common stock -purchase of supplies with cash -interest paid on notes
-payment of employee salaries -purchase of supplies with cash -interest paid on notes
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? -payment of salaries -purchase of supplies on account -issuance of bonds -purchase of building -payment of an accounts payable balance
-payment of salaries -payment of an accounts payable balance
Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? -receipt of interest -collection from customers -payment of utilities -sale of a building -borrowing from bank
-receipt of interest -collection from customers
Two entries are required when a previously written off account is collected. These two entries include: -record the adjustment to sales -record bad debt expense -record the collection on the account receivable -reinstate the account receivable
-record the collection on the account receivable -reinstate the account receivable
Internal control consists of plans to (Select all that apply.) -safeguard company assets. -report misuse of company assets to investors. -provide accurate and reliable accounting information. -report management errors to the police.
-safeguard company assets. -provide accurate and reliable accounting information.
Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) -nonaccrued sales. -deferred sales. -sales on account. -credit sales.
-sales on account. -credit sales.
Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's: (Select all that apply.) -income statement -statement of cash flows -balance sheet -statement of stockholders' equity
-statement of cash flows -balance sheet
A good internal control system for cash would require that those who handle cash should not be involved with -the accounting records. -reconciliation of bank balances. -employee evaluations. -management decisions.
-the accounting records. -reconciliation of bank balances
The two conditions that must exist for a sale and the related receivable to be recognized are -the company has provided goods or services to the customer. -the product must be delivered in 60 days. -cash is received from the sale. -collection from the customer is probable.
-the company has provided goods or services to the customer. -collection from the customer is probable.
The specific identification method (select all that apply): -would be beneficial to a company that makes inexpensive products with high sales volume -would be beneficial to a company that makes fine jewelry -matches each unit of inventory with its actual cost -is not an acceptable method of accounting
-would be beneficial to a company that makes fine jewelry -matches each unit of inventory with its actual cost
Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance? A)$18,000 B)$20,000 C)$19,000 D)$17,000
A)$18,000
On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1? A)$20 B)$80 C)$60 D)$30 E)$120
A)$20
Arcelia Corp.'s bank statement has an end balance of $40,000. The deposits outstanding were $7,000. A note was collected by the bank for $2,000. Checks outstanding at the end of the month were $1,000. Using the bank statement, what is the corrected cash balance? A)$46,000 B)$48,000 C)$44,000 D)$37,000
A)$46,000
Palmer Company's beginning inventory consists of 1,000 units at $1.00 per unit. During the year, the company purchases 5,000 units costing a total of $5,800. At the end of the accounting period, Palmer still has 1,000 units on hand. If Palmer uses the weighted average cost method, its cost of goods sold (rounded to the nearest dollar) will be A)$5,667. B)$5,800. C)$5,000.
A)$5,667.
Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, the cost of ending inventory will be what? Note: this question is asking for the ending inventory value, not cost of goods sold. A)$640. B)$600. C)$620. D)$636.
A)$640.
Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was: A)$990 B)$900 C)$999 D)$1,010 E)$1,000
A)$990
When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer? A)An entry to reinstate the account receivable and an entry to record payment. B)An entry to record payment and an entry to record bad debt expense. C)An entry to reinstate the account receivable and an entry to adjust bad debt expense. D)An entry to adjust net sales and an entry to adjust bad debt expense.
A)An entry to reinstate the account receivable and an entry to record payment.
On March 5, Oak Corp. provided services on account to Pine. Oak agreed to accept a $100,000, 8%, 6-month interest-bearing note from Pine in payment for the services. The entry required on Oak's books on March 5 would require which of the following entries? A)Debit Notes Receivable $100,000; credit Service Revenue $100,000. B)Debit Accounts Receivable $100,000; credit Service Revenue $100,000. C)Debit Notes Receivable $108,000; credit Service Revenue $108,000. D)Debit Notes Receivable $102,000; credit Service Revenue $102,000.
A)Debit Notes Receivable $100,000; credit Service Revenue $100,000.
For internal record keeping, most companies carry their inventory using the ______ basis. A)FIFO B)specific identification C)LIFO D)average cost
A)FIFO
The primary benefit for choosing this method is that it tends to save taxes when inventory costs are rising. A)LIFO B)FIFO C)Weighted-average cost
A)LIFO
When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make? A)Make an adjusting entry at the end of the current period to accrue the interest earned. B)Make an adjusting entry at the end of the the next period to accrue interest earned. C)No adjustment is necessary until the cash is collected.
A)Make an adjusting entry at the end of the current period to accrue the interest earned.
Gross Profit is A)Net Sales Revenue minus Cost of Goods Sold. B)Beginning Inventory plus Purchases minus Ending Inventory. C)Revenue minus Inventory. D)Revenue minus Expenses.
A)Net Sales Revenue minus Cost of Goods Sold.
For internal control purposes, which of the following responsibilities should be separated for cash disbursements? A)Payment authorization and check preparation B)Check ordering and custody of checks C)Check ordering and check proofreading
A)Payment authorization and check preparation
Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier? A)Smith B)Jones C)both are about the same
A)Smith
The percentage-of-receivables approach to measuring bad debt expense is referred to as ______ method. A)a balance sheet B)an expense C)an equity D)an income statement
A)a balance sheet
The account "Allowance for Uncollectible Accounts" is classified as A)a contra asset to accounts receivable. B)a liability account in the balance sheet. C)an expense in the income statement. D)a contra equity account.
A)a contra asset to accounts receivable.
Inventory is classified as A)a current asset. B)a noncurrent asset. C)a revenue. D)a current liability.
A)a current asset.
The percentage-of-receivables method of estimating bad debt applies ______ to ______. A)a single percentage; accounts receivable B)various percentages; accounts receivable C)a single percentage; total sales D)various percentages; total sales
A)a single percentage; accounts receivable
To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to A)allowance for uncollectible accounts. B)sales returns and allowances. C)accounts receivable. D)bad debt expense.
A)allowance for uncollectible accounts.
Employee purchases should be included in the accounting records A)by the end of the accounting period. B)once employment ends. C)immediately upon purchase.
A)by the end of the accounting period.
Internal control over cash is important because A)cash can be stolen. B)cash is the most secure asset. C)cash is a low-risk asset. D)cash is the largest asset in the balance sheet.
A)cash can be stolen.
Under the allowance method, companies estimate ______ uncollectible amounts and report those estimates in the ______ year. A)future; current B)current; current C)current; future D)future; future
A)future; current
Freight-in is A)included as a cost of inventory. B)treated as a miscellaneous expense. C)a selling expense.
A)included as a cost of inventory.
Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are A)included in Gerald's inventory. B)treated as a selling expense. C)paid by the supplier.
A)included in Gerald's inventory.
Bad debt expense is reported on the: A)income statement B)balance sheet C)statement of cash flows
A)income statement
A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as A)internal controls. B)general controls. C)security controls. D)protective controls. E)corporate regulations.
A)internal controls.
A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for: A)inventory B)gains and losses C)revenue D)operating expenses
A)inventory
Freight-in is recorded as part of ______, whereas freight out is often recorded as ______. A)inventory; selling expense B)selling expense; cost of goods sold C)miscellaneous expenses; selling expense
A)inventory; selling expense
The control environment is most affected by the attitudes and actions of A)management. B)investors. C)employees. D)creditors.
A)management.
A formal credit arrangement between a creditor and debtor is called a(n) A)note receivable. B)interest receivable. C)trade receivable. D)account receivable.
A)note receivable.
A formal, signed credit agreement between a lender and a borrower is called a(n) ______ by the lender. A)note receivable. B)account payable. C)note payable. D)account receivable.
A)note receivable.
Companies have the greatest ability to eliminate this element of fraud: A)opportunity B)rationalization C)motive
A)opportunity
Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are: A)paid by the supplier. B)deducted from Ronald's inventory. C)treated as a selling expense.
A)paid by the supplier.
A good internal control system would require that the employee who handles cash must not be involved in A)reconciling the bank statement. B)hiring decisions. C)daily operations of the company. D)the accounts payable function.
A)reconciling the bank statement.
Strong internal control systems allow greater reliance by investors on: A)reported financial statements B)continued success of a company C)stock market performance
A)reported financial statements
A petty cash fund is used for A)small amounts of cash needed for low-cost items. B)routine purchases of inventory and required necessities. C)larger items purchased that were not in the budget.
A)small amounts of cash needed for low-cost items.
When the direct write-off method is used, an entry for bad debt expense is required A)when the account receivable is determined to be uncollectible. B)only when bad debts are recorded on the tax return. C)at the end of the year. D)when each sale is made.
A)when the account receivable is determined to be uncollectible.
Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record this adjustment to the sales price with a A)debit to Cash $50. B)debit to Sales Allowances $50. C)debit to Accounts Receivable $50. D)credit to Sales Allowances $50.
B)debit to Sales Allowances $50.
When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account. A)increase B)decrease
B)decrease
Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are A)electronic funds transfers. B)deposits outstanding. C)NSF checks. D)checks outstanding.
B)deposits outstanding.
Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record ______ bad debt expense ______. A)actual; when accounts are written off B)estimated; at the end of the year C)actual; at the end of the year D)estimated; when accounts are written off
B)estimated; at the end of the year
The purchase discount term, 2/10, n/30, means that the purchaser ______. A)may receive a discount between 2% and 10% B)has 10 days from the purchase date in which to pay and receive a 2% discount C)may receive a discount of 2/10 of the invoice price if paid within 30 days D)may receive a 10% discount if the invoice is paid within two days of the purchase date
B)has 10 days from the purchase date in which to pay and receive a 2% discount
Companies extend credit to customers and sell goods on account because A)it reduces accounts receivable. B)it increases sales. C)it increases inventory.
B)it increases sales.
The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide. A)lower of cost and sales revenue; greater B)lower of cost and net realizable value; greater C)lower of cost and sales revenue; smaller D)cost-benefit; smaller E)lower of cost and net realizable value; smaller F)cost-benefit; greater
B)lower of cost and net realizable value; greater
The estimated selling price of inventory less any costs of completion, disposal, and transportation is referred to as: A)net sales revenue B)net realizable value C)full cost D)gross profit E)replacement cost
B)net realizable value
Receivables not expected to be collected should A)always be counted in assets of the company. B)not be counted in assets of the company. C)initially be included as assets and then be written off when the customer does not pay.
B)not be counted in assets of the company.
A formal, signed credit agreement between a lender and a borrower is called a(n) ______ by the lender. A)account payable. B)note receivable. C)note payable. D)account receivable.
B)note receivable.
Freight-in on inventory purchases is typically recognized as A)selling and administrative expenses. B)part of the cost of purchasing inventory. C)cost of goods sold when paid.
B)part of the cost of purchasing inventory.
Two types of control activities are A)operating and investing controls. B)preventive and detective controls. C)investor and creditor controls. D)asset and liability controls.
B)preventive and detective controls.
The ______ ratio shows the number of times during a year that the average receivable balance is collected. A)inventory turnover B)receivables turnover C)average collection period D)current
B)receivables turnover
The inventory costing method that matches each unit of inventory with its actual cost is referred to as the Blank______ method. A)actual cost B)specific identification C)weighted-average D)matching unit
B)specific identification
The receivables turnover ratio indicates A)the relationship between cash sales and credit sales. B)the number of times during a year that the average accounts receivables were collected. C)the relationship between sales and cost of goods sold. D)how efficient the company is at managing sales and inventory.
B)the number of times during a year that the average accounts receivables were collected.
If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference. A)control B)timing C)internal D)reconciliation
B)timing
Weighted-average unit cost is determined by dividing cost of goods available for sale by A)quantity in ending inventory. B)total quantity available for sale. C)quantity most recently purchased. D)quantity in beginning inventory.
B)total quantity available for sale.
The direct write-off method is used when A)a company elects to use this method as one of several alternatives. B)uncollectible accounts are not anticipated or are immaterial. C)bad debts are expected to be material in amount. D)a company expects excessive sales returns.
B)uncollectible accounts are not anticipated or are immaterial.
Inventory not yet sold is classified as a(n) _______ in the _____ ______
Blank 1: asset Blank 2: balance Blank 3: sheet
Bad debt expense is reported on the _____ _____ and is classified as an operating expense.
Blank 1: income Blank 2: statement
Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, cost of goods sold will be A)$1,744. B)$1,980. C)$1,760.
C)$1,760.
Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, ending inventory will be A)$436. B)$440. C)$420.
C)$420.
Beginning inventory is $20,000. Purchases of inventory during the year are $100,000. Ending inventory is $50,000. What is cost of goods sold? A)$130,000 B)$120,000 C)$70,000 D)$170,000
C)$70,000
Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $3,000; deposits outstanding 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)$10,110 B)$8,910 C)$9,910 D)$6,910
C)$9,910 Reason-$10,000 - $100 + $10
Where is inventory reported in the financial statements? A)Statement of cash flows as an investing activity B)Balance sheet as a noncurrent asset C)Balance sheet as a current asset D)Income statement as revenue
C)Balance sheet as a current asset
When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?. A)Deposits outstanding B)Charges for NSF checks C)Collections of funds by the bank D)Outstanding checks
C)Collections of funds by the bank
The framework for designing an internal control system is provided by the A)Public Companies Accounting Oversight Board (PCAOB). B)Financial Accounting Standards Board. C)Committee of Sponsoring Organizations (COSO) of the Treadway Commission. D)Securities and Exchange Commission Act of 1934.
C)Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
Which of the following concepts or principles is especially relevant to the lower of cost and net realizable value rule? A)Periodicity B)Full disclosure C)Conservatism D)Going concern
C)Conservatism
Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold? A)Debit Accounts Receivable $2,000; credit Inventory $2,000 B)Debit Cost of Goods Sold $1,500; credit Sales Revenue $1,500 C)Debit Cost of Goods Sold $1,500; credit Inventory $1,500 D)Debit Inventory $1,500; credit Cost of Goods Sold $1,500
C)Debit Cost of Goods Sold $1,500; credit Inventory $1,500
Which of the following is an internal control procedure for cash disbursements? A)Disbursements should be made only at the end of each month. B)Disbursements should be made in cash. C)Disbursements should be made by check, debit, or credit card. D)Disbursements should be made with a cashier's check.
C)Disbursements should be made by check, debit, or credit card.
Which inventory cost flow method approximates the physical flow of inventory items? A)LIFO B)Weighted-average cost C)FIFO
C)FIFO
The cost of goods not yet sold is recorded in the ______ account, whereas the cost of goods that are sold to customers is recorded in ______. A)Cash; Inventory B)Cost of Goods Sold; Sales Revenue C)Inventory; Cost of Goods Sold D)Cost of Goods Sold; Inventory
C)Inventory; Cost of Goods Sold
Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. At the end of the year, Vogel converts its inventory balance from FIFO to LIFO by using the A)inventory conversion B)FIFO adjustment C)LIFO adjustment
C)LIFO adjustment
What type of company purchases raw materials and makes goods to sell? A)Retailers B)Wholesalers C)Manufacturers
C)Manufacturers
An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n) A)prepaid receivable. B)note payable. C)account receivable. D)nontrade receivable.
C)account receivable.
Writing off a customer's account as uncollectible reduces the balance of A)cash B)accounts payable C)accounts receivable D)allowance for collectible accounts
C)accounts receivable
The allowance for uncollectible accounts is a contra account to A)sales allowances. B)bad debt expense. C)accounts receivable. D)revenue.
C)accounts receivable.
To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to A)bad debt expense. B)accounts receivable. C)allowance for uncollectible accounts. D)sales returns and allowances.
C)allowance for uncollectible accounts.
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the A)debt forgiveness method B)direct write-off method C)allowance method D)bad debt method
C)allowance method
Meller purchases inventory on account. As a results, Meller's A)income will decrease. B)liabilities will decrease. C)assets will increase. D)stockholders' equity will decrease.
C)assets will increase.
With the allowance method, bad debt expense is recorded A)when the customer returns the product. B)when the customer purchases the goods. C)at the end of the period when bad debts are estimated. D)when the account becomes uncollectible.
C)at the end of the period when bad debts are estimated.
The lower of cost and net realizable value method was developed to A)prevent the company from selling the inventory below its original cost. B)provide an alternative to the FIFO, LIFO, and weighted-average methods. C)avoid reporting inventory at an amount that exceeds the benefits it provides.
C)avoid reporting inventory at an amount that exceeds the benefits it provides.
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to A)recognize bad debts earlier. B)result in the lowest net income. C)be more accurate. D)result in the highest net income.
C)be more accurate.
A bank reconciliation reconciles the bank statement with the company's A)cash from operating activities. B)net cash flow in the statement of cash flows. C)cash account in the balance sheet. D)net income in the income statement.
C)cash account in the balance sheet.
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called A)NSF checks. B)deposits outstanding. C)checks outstanding. D)electronic funds transfers.
C)checks outstanding
On June 1, Tulip Corp. provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a A)credit to Service Revenue, $44,000. B)debit to Notes Receivable, $44,000. C)debit to Notes Receivable, $40,000. D)credit to Service Revenue, $41,000.
C)debit to Notes Receivable, $40,000.
The bank will show a customer's withdrawal as a ______. A)credit, because a withdrawal increases its liability from the bank's point of view B)debit, because cash is an asset C)debit, because a withdrawal decreases its liability from the bank's point of view D)credit, because cash is an asset
C)debit, because a withdrawal decreases its liability from the bank's point of view
The amount of cash in the balance sheet reflects the A)cash expected to be used in the following year. B)amount of cash spent during the period. C)ending cash on the balance sheet date. D)cash inflows to the company from selling goods and services.
C)ending cash on the balance sheet date.
At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the A)company's credit department is inefficient. B)company's credit policy was too lenient. C)estimate of uncollectible accounts was too high D)estimate of uncollectible accounts was too low.
C)estimate of uncollectible accounts was too high
Net sales revenue minus cost of goods sold is A)net income. B)earnings before taxes. C)gross profit. D)operating income.
C)gross profit.
Accounts receivable are normally classified A)in the income statement as other income. B)in the income statement as revenue. C)in the balance sheet as assets. D)in the balance sheet as liabilities.
C)in the balance sheet as assets.
Combining operating income with non-operating revenues and expenses yields A)operating income B)net income C)income before income taxes D)non-operating income
C)income before income taxes
he direct write-off method is required for A)IFRS reporting purposes. B)U.S. GAAP reporting purposes. C)income tax purposes.
C)income tax purposes.
(Face value x annual interest rate x fraction of the annual period) is the formula for A)issue price of a security. B)sales price of a good. C)interest on a note. D)bad debt expense.
C)interest on a note.
Because most companies receive payments for the sale of products and services either in the form of cash or as a check received through the mail, A)cash should be audited weekly. B)accounting systems must be audited annually. C)internal control over cash receipts is important.
C)internal control over cash receipts is important.
Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold. The reported amounts for ending inventory and cost of goods sold will not be the same across inventory reporting methods because: A)inventory costs have not yet been incurred. B)inventory costs are incurred solely on the balance sheet date. C)inventory costs generally change over time.
C)inventory costs generally change over time.
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement. A)single-step B)classified C)multiple-step D)current
C)multiple-step
Income before income taxes is calculated by combining operating income with A)cost of goods sold B)revenues C)non-operating income D)operating expenses
C)non-operating income
Revenues and expenses arising from activities that are not part of the company's operations are classified as ______ revenues and expenses. A)operating B)exceptional C)nonoperating
C)nonoperating
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will ______ net income. A)increase B)decrease C)not affect
C)not affect
Receivables not expected to be collected should A)initially be included as assets and then be written off when the customer does not pay. B)always be counted in assets of the company. C)not be counted in assets of the company.
C)not be counted in assets of the company.
Separation of duties and E-commerce controls are examples of ______ controls. A)detective B)assurance C)preventive D)communication
C)preventive
Which of the following represents a critical component of a well functioning internal control system? A)a computerized accounting system B)hiring prestigious top-management C)separation of duties D)adequate cash flows
C)separation of duties
Average days in inventory measures A)average gross profit for the year. B)how many times the average inventory was sold per year. C)the approximate number of days the average inventory is held. D)average time from the sale of inventory to the collection from customers.
C)the approximate number of days the average inventory is held.
For accounts receivable, the longer an account is outstanding, A)the more likely the customer will return. B)the higher probability of it being collected. C)the more likely it will prove uncollectible. D)the better the customer.
C)the more likely it will prove uncollectible.
The LIFO adjustment is used internally to convert the inventory A)to the FIFO basis. B)to the weighted average basis. C)to the LIFO basis.
C)to the LIFO basis.
A non-sufficient funds check requiring an adjustment to the cash balance was written: A)by the bank preparing the bank statement used in the reconciliation B)by the company preparing the bank reconciliation C)to the company preparing the bank reconciliation
C)to the company preparing the bank reconciliation
Neumann, Inc.'s books show an ending cash balance of $20,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $2,000; deposits outstanding of $3,000; NSF check of $200; and interest earned on the bank account of $30, the company's up-to-date ending cash balance equals: A)$18,000 B)$21,000 C)$20,200 D)$19,830
D)$19,830
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements? A)As a current asset B)As a contra account to sales C)As other comprehensive income D)As a noncurrent asset
D)As a noncurrent asset
Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit ______ and credit ______. A)Accounts Receivable; Cash B)Cash; Allowance for Uncollectible Accounts C)Allowance for Uncollectible Accounts; Cash D)Cash; Accounts Receivable
D)Cash; Accounts Receivable
Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following? A)Debit Sales Revenue B)Debit Purchases C)Debit Accounts Payable D)Debit Inventory
D)Debit Inventory
Which inventory cost flow method most realistically matches the current cost of inventory with the current revenue it produces? A)FIFO B)Specific identification C)Weighted-average D)LIFO
D)LIFO
Which of the following is classified as part of the control environment? A)Policies and procedures that help ensure that managements' directives are followed B)Identification and analysis of internal and external risk factors C)Formal procedures for reporting control deficiencies D)Overall ethical tone of the organization with respect to internal control
D)Overall ethical tone of the organization with respect to internal control
The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the A)SEC Reforms Act. B)CPA Investigations Act. C)Investor Protection Act. D)Sarbanes-Oxley Act.
D)Sarbanes-Oxley Act.
An account receivable is normally classified as A)a revenue. B)a liability. C)an expense. D)an asset.
D)an asset.
The estimated expense for accounts that may not be collected is referred to as A)interest expense. B)amortization expense. C)accounts receivable. D)bad debt expense. E)sales discounts.
D)bad debt expense.
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called A)deposits outstanding. B)electronic funds transfers. C)NSF checks. D)checks outstanding.
D)checks outstanding.
Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include A)debit Accounts Receivable. B)debit Bad Debt Expense. C)credit Sales Returns and Allowances. D)debit Allowance for Uncollectible Accounts.
D)debit Allowance for Uncollectible Accounts.
Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a A)debit to Sales. B)debit to Check Receivable. C)debit to Accounts Receivable. D)debit to Cash.
D)debit to Cash.
The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for A)designing fraud-proof accounting system. B)preparing useful financial statements. C)auditing internal control systems. D)designing an internal control system.
D)designing an internal control system.
At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the A)company's credit policy was too lenient. B)estimate of uncollectible accounts was too high. C)company's credit department is inefficient. D)estimate of uncollectible accounts was too low.
D)estimate of uncollectible accounts was too low.
Under the allowance method, companies estimate ______ uncollectible amounts and report those estimates in the ______ year. A)current; current B)future; future C)current; future D)future; current
D)future; current
Combining operating income with non-operating revenues and expenses yields A)operating income B)non-operating income C)net income D)income before income taxes
D)income before income taxes
A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for: A)revenue B)gains and losses C)operating expenses D)inventory
D)inventory
An aging schedule classifies accounts receivable based on A)customer credit rating. B)past experience with customer. C)size of customer purchase. D)length of time outstanding.
D)length of time outstanding.
The primary benefit of LIFO is: A)lower record-keeping costs B)higher income C)higher assets D)tax savings
D)tax savings
A bank reconciliation is a procedure used to determine if the cash balance in the bank statement equals A)the total cash debits recorded in the accounting period. B)purchases for the period. C)the cash flows from operating activities. D)the ending balance of cash in the accounting records.
D)the ending balance of cash in the accounting records.
The average collection period is an estimate of A)the number of days of inventory that have not yet been paid. B)how many times on average a sale is made. C)the average length of time to make a sale. D)the number of days the average account receivable balance is outstanding.
D)the number of days the average account receivable balance is outstanding.
Accounts receivable are typically classified as current assets because A)they are matched with accounts payable for the period. B)they are a formal agreement to pay within a specific period of time. C)they accrue interest at a specified interest rate. D)they will be converted to cash within 1 year.
D)they will be converted to cash within 1 year.
The allowance method is required by ____
GAAP
Perpetual inventory system
Neumann Company can determine the cost of inventory still on hand by referring to the inventory account. Periodic inventory system
The element of fraud which is easiest for companies to eliminate is ____
Opportunity
Preparation of a bank ______ helps maintain control of cash accounts.
Reconciliation
Periodic inventory system
Shelly Company must first take a physical inventory to determine the cost of inventory still on hand.
The three elements present in every fraud are commonly referred to as the fraud _____
Triangle
Using the perpetual inventory system, what is the effect of a sale of inventory on assets? -assets decrease by the sales price of the inventory -assets decrease by the cost of the inventory -assets increase by the cost of the inventory -assets increase by the sales price of the inventory
assets decrease by the cost of the inventory assets increase by the sales price of the inventory
A(n) _______ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low.
debit
A periodic performance review is an example of a(n) ______ control.
detective
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational _____
fraud
When a person intentionally deceives another person or company for personal gain, this is referred to as _____
fraud
Total revenues less discounts, returns, and allowances are referred to as ______ revenues.
net
A(n) _____ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction.
timing
For a typical credit sale, the seller records revenue A)when the contract is signed. B)at the point of delivery. C)when cash is collected. D)when all expenses are estimated.
B)at the point of delivery.
The Sarbanes-Oxley Act applies to A)companies that are formed as partnerships. B)companies that are required to file with the SEC. C)any company organized in the United States. D)companies that operate internationally.
B)companies that are required to file with the SEC.
Allowance for Uncollectible Accounts has a credit balance because it is a(n) ______ account. A)liability B)contra-asset C)asset D)contra-revenue E)expense
B)contra-asset
A check that is NSF (nonsufficient funds) is a check that A)cannot be paid because the bank does not have the money. B)cannot be paid because the account does not contain enough funds. C)was drawn on an account that has been closed.
B)cannot be paid because the account does not contain enough funds
Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following? A)Credit Sales Discount $50 B)Debit Sales Discount $15 C)Credit Cash $500 D)Debit Service Revenue $500
B)Debit Sales Discount $15
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold? A)LIFO B)FIFO C)Weighted-average
B)FIFO
Generally, if a company wants its inventory cost flows to be the same as the inventory's physical flows, what inventory method would it use? A)LIFO B)FIFO
B)FIFO
Which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received? A)LIFO B)FIFO C)Weighted average
B)FIFO
Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to: A)Raw Materials B)Inventory C)Purchases D)Cost of Goods Sold
B)Inventory
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory? A)Weighted-average B)LIFO C)FIFO
B)LIFO
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income? A)Weighted-average B)LIFO C)FIFO
B)LIFO
When prices rise, which inventory method tends to result in lower income and a lower tax liability? A)NIFO B)LIFO C)FIFO D)Weighted-average cost
B)LIFO
The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the A)LIFO savings B)LIFO reserve C)FIFO cost D)FIFO reserve
B)LIFO reserve
The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the A)FIFO reserve B)LIFO reserve C)Inventory reserve
B)LIFO reserve
Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs? A)Periodic inventory system B)Perpetual inventory system C)Both periodic and perpetual inventory systems
B)Perpetual inventory system
How is income tax reported on a multiple-step income statement? A)As an extraordinary item B)Separately after non-operating revenues and expenses C)As a part of operating income D)As part of cost of goods sold E)Separately before non-operating revenues and expenses
B)Separately after non-operating revenues and expenses
Which of the following allows greater reliance by investors on reported financial statements? A)High liquidity reported on the balance sheet B)Strong internal control systems C)Increasing profitability of a company
B)Strong internal control systems
The ending balance in cash is reported in which financial statement(s)? A)The balance sheet and income statement B)The balance sheet and statement of cash flows C)The statement of cash flows only D)The balance sheet only
B)The balance sheet and statement of cash flows
What is the primary purpose of a bank reconciliation? A)To ensure that the cash disbursements of the period were properly authorized B)To ensure the bank balance per reconciliation is equal to the company balance per reconciliation C)To ensure that the cash receipts of the period were received
B)To ensure the bank balance per reconciliation is equal to the company balance per reconciliation
Which of the following accounts would be found in the balance sheet of a manufacturing company? A)Merchandise inventory B)Work in process C)Cost of goods sold
B)Work in process
Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be A)$2,560. B)$2,540. C)$2,544. D)$2,400.
B)$2,540.
Malik Corp.'s bank statement has an end balance of $50,000. The deposits outstanding were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance? A)$54,000 B)$53,000 C)$46,000 D)$52,000
B)$53,000
Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance? A)$107,000 B)$93,000 C)$97,000 D)$90,000
B)$93,000
Average days in inventory is calculated as A)average inventory divided by 365. B)365 divided by the inventory turnover ratio. C)365 divided by gross profit. D)cost of goods sold divided by average inventory.
B)365 divided by the inventory turnover ratio.
In a bank reconciliation, which of the following will require a journal entry by the company? A)Adjustments to the bank balance for items recorded on the books but not yet on the bank statement B)Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books C)Both the adjustments to the bank balance and adjustments to the cash balance in the accounting records
B)Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books
On Sept 1, year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of year 2. What is the amount of interest revenue that should be recorded for year 1? A)$80 B)$120 C)$45 D)$60 E)$40
E)$40 Reason: The 6% is an annual rate and since only 4/12 of the year has been earned, interest revenue is $40 (=$2,000 x .06 x (4/12)). Sept, Oct, Nov, Dec is 4/12 of a year.
Where is a note receivable reported in the balance sheet? A)In either current or noncurrent liabilities, as appropriate. B)In noncurrent liabilities until paid. C)In current assets. D)In noncurrrent assets. E)In either current or noncurrent assets, as appropriate.
E)In either current or noncurrent assets, as appropriate.
The asset most susceptible to fraudulent activity is ____
cash
True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check. -True -False
false
