ACT210 EXAM 2

Rice Corp. noticed that a check written by the company for $1,000 was incorrectly recorded by the bank as $1,100. How should this error be handled in a bank reconciliation?

$100 should be added to the bank balance.

The entry to record the estimate for uncollectible accounts includes:

A debit to Bad Debt Expense

Which of the following is considered cash for financial reporting purposes?

Coins and currency. Debit card sales. Checks received from customers. ALL

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?

$18,000

The effect of writing off a specific account receivable is:

A reduction in the Allowance for Uncollectible Accounts.

Gross profit is defined as:

Sales Revenue minus Cost of Goods Sold

Crimson Inc. recorded credit sales of $787,000, of which $570,000 is not yet due, $120,000 is past due for up to 180 days, and $97,000 is past due for more than 180 days. Under the aging of receivables method, Crimson Inc. expects it will not collect 5% of the amount not yet due, 13% of the amount past due for up to 180 days, and 23% of the amount past due for more than 180 days. The allowance account had a debit balance of $3,800 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?

$66,410 each value time percent expected not to collect summed up (ex. 120,000 x 0.13 = 15600)

Use the information below to calculate net revenues. Service Revenue$100,000 Sales Discounts$2,000 Accounts Receivable$15,000 Sales Allowances$7,000 Cash$18,000

91,000 service rev- sales allow/discount

Oswego Clay Pipe Company provides services of $45,500 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 12?

Accounts Receivable 45,500 Sales Revenue 45,500

During the year, Bears Inc. recorded credit sales of $650,000. Before adjustments at year-end, Bears has accounts receivable of $350,000, of which $54,000 is past due, and the allowance account had a credit balance of $2,900. Using the aging of receivables method, what would be the adjustment assuming Bears expects it will not collect 8% of the amount not yet past due and 21% of the amount past due?

Bad Debt Expense32,120 Allowance for Uncollectible Accounts 32,120 ($296,000 × 8%) + ($54,000 × 21%) − $2,900 = $32,120. 350,000-54,000 = 296,000

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections of funds by the bank

A sales discount is recorded by the seller as a(n):

Contra revenue

If a company understates its ending inventory in the current period, what effect will this have on the balance of Retained Earnings at the end of the following period?

Have no effect on retained earnings.

If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account:

Net accounts receivable do not change

Corporate executive accountability under the Sarbanes-Oxley Act requires corporate executives to:

Personally certify the company's financial statements.

Who is ultimately responsible for the establishment and success of a company's internal control system?

The company's top executives.

Effective internal control over cash includes the requirement that:

The person who makes deposits should NOT record the deposits.

The primary reason the balance of cash in the company's records will differ from the balance of cash in the bank's records includes:

Timing differences of recording cash transactions by the company and by the bank.

What is a direct purpose of internal controls?

To improve the accuracy and reliability of accounting information.

Suppose Windell Corporation understates its ending inventory amount. What effect will this have on the reported amount of net income in the year of the error?

Understate net income.

In a bank reconciliation, the bank's charge of $10 for checking account fees is

deducted from the company's cash balance.

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for

designing an internal control system

What comparative advantages do notes receivables possess compared to other receivables?

higher likelihood of collectibility interest-bearing

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

internal controls

During the year, Inga Corporation writes off a specific accounts receivable. Assuming that Inga Corporation uses the allowance method, what is the effect of later collecting the written-off accounts receivable on net income?

no effect

Managers who are entrusted with taking care of the assets of the company are referred to as ______ of the company's assets.

stewards

Which of the following allows greater reliance by investors on reported financial statements?

strong internal control systems

Northwest Fur Co. started the year with $97,000 of merchandise inventory on hand. During the year, $450,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Northwest paid freight-in charges of $7,000. Merchandise with an invoice amount of $4,200 was returned for credit. Cost of goods sold for the year was $376,000. What is ending inventory?

$169,342. Ending Inventory = $97,000 + $450,000 + $7,000 − $4,200 − $4,458* − $376,000 = $169,342.* Purchase discounts = ($450,000 − $4,200) × 1% = $4,458.

At the beginning of the year, Johnson Supply has inventory of $5,200. During the year, the company purchases an additional $20,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $3,000. What amount will Bennett report for cost of goods sold?

$22,200 Begin Invent + Purchases - Ending Invent

On May 31, Money Corporation's Cash account showed a balance of $18,500 before the bank reconciliation was prepared. After examining the May bank statement and items included with it, the company's accountant found the following items: Checks outstanding$3,250 Deposits outstanding 2,700 NSF check 100 Service fees 110 Error: Money Corp. wrote a check for $115 but recorded it incorrectly for $1,150. What is the amount of cash that should be reported in the company's balance sheet as of May 31?

$19,325 SB(18,500)-NSF(100)-SF(110) = x Incorrect(1150)-Correct(115) = y x + y = answer

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4?

$5,000

A company reports the following information for the year: Net credit sales$110,000 Average accounts receivable 15,000 Cash collections on credit sales 95,000 What is the company's receivables turnover ratio?

110,000/15,000 = 7.3 net credit sales/avg. AR

For the year, Sealy Incorporated reports net sales of $50,000, cost of goods sold of $40,000, and an average inventory balance of $5,000. What is Sealy's gross profit ratio?

20% GP = sales - COGS GP ratio = GP/ Net Sales

On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25?

Debit Sales Discount for $10.

McGregor Company allows customers to pay with credit cards. The credit card company charges McGregor 1% of the sale. When a customer uses a credit card to pay McGregor $400 for services provided, McGregor would:

Debit service fee expense for $4.

Fan Company sells inventory on account. The entry or entries to record this sale using a perpetual inventory system would include a:

Debit to Accounts Receivable. Credit to Sales Revenue Debit to Cost of Goods Sold. ALL

At the end of the year, Marline Corporation determines that its ending inventory has a cost of $2,000 and a net realizable value of $1,900. What would be the effect of the adjustment to write down inventory to net realizable value?

Decrease in net income.

Which of the following adjusts the bank's balance of cash in a bank reconciliation?

Deposits outstanding.

The amount of cash owed to the company by its customers from the sale of products or services on account is known as:

accounts receivable

In a bank reconciliation, interest revenue earned on a company's bank account is

added to the company's cash balance

The accounting term for a situation where two or more people act in coordination to circumvent internal controls is

collusion

Who is responsible for providing an opinion on management's assessment of internal control?

company's auditors

The balance in a company's Cash account on August 31 was $18,900 before the bank reconciliation was prepared. After examining the August bank statement and items included with it, the company's accountant found: Checks outstanding$3,700 NSF check 170 Note collected by bank for the Colt Company 1,250 Deposits outstanding 3,200 Bank service fees 120 What is the amount of cash that should be reported in the balance sheet as of August 31?

$19,860. SB(18900)-NSF(170)-SF(120)+NOTE(1250)

On December 31, 2021, Coolwear Inc. had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $49,000 and $1,550, respectively. During 2022, Coolwear wrote off $875 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $5,300 at December 31, 2022. Bad debt expense for 2022 would be:

$4,625 AUA (2022) $5,300 − (AUA (2021) $1,550) − AR (2022)$875)

On August 1, 2021, Turner Manufacturing lends cash and accepts a $7,000 note receivable that offers 4% interest and is due in nine months. How would Turner record the year-end adjustment to accrue interest in 2021? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

$7,000 × 4% × 5 / 12 = $117. ignore 9 months, based on August

In a bank reconciliation, which of the following will require a journal entry by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

Section 404 of the Sarbanes-Oxley Act requires companies to:

Document and assess internal controls.

Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs?

FIFO

The Sarbanes-Oxley Act of 2002 applies to all companies that:

File reports with the Securities and Exchange Commission.

Under the allowance method for uncollectible accounts, the balance of Allowance for Uncollectible Accounts increases when:

Future bad debts are estimated

Beverage International reports net credit sales for the year of $444,000. The company's accounts receivable balance at the beginning of the year equaled $24,000 and the balance at the end of the year equaled $34,000. What is Beverage International's receivables turnover ratio?

Net credits sales ($444,000) / Average accounts receivable [($24,000 + $34,000) / 2] = 15.3

Which of the following refers to the seller reducing the customer's balance owed because of some deficiency in the company's product or service?

Sales Allowance