Accounting Exam 3 !!!!

Accounting Depreciation

the sum of all depreciation expense over all the years the asset has been in service

Book Value ( Net)

Cost - Accumulated Depreciation

Book Value should equal?

the salvage value at the end of the an assets life

Accumulated depreciation reported where?

in the balance sheet

Tangible assets?

depreciation expense

intangible events?

have identifiable lives with amortization expense

natural resources ?

with depletion expense

recognize the loss of value in goodwill with?

impairment loss

Net Realizable Value

Accounts Receivable - Allowance for Doubtful accounts

FICA taxes and income taxes are withheld from?

the employee’s paycheck

Unemployement taxes are a payroll related?

expense the employer has to pay

cap on social security

110,000

Cap on medicare

no cap on medicare

cap on unemployment taxes

7,000

when a bank collects an account receivable for a depositor,

the depositor is notified through a credit memo that is included with the bank statement

Employees are more likely to exercise reasonable caution when?

they are help responsible for their actions and when they have the authority to use their own judgement

physical control examples are:

keeping account records in a fireproof vault

anannounced physical equipment counts

performance evalutions are necessary because?

few people can evaluate their own performance objectively

effect on the financial statement when the bank collected a $100 account receivable for company ING?

total assets will not be affected, cash inflow of $100

the journal entry to recognize a non-sufficient funds (NSF) check includes a credit?

a credit to the cash account and a debit to the accounts receivable account

fidelity bond

insurance that protects a company from losses caused by employee dishonesty

appropriate accounting operations should be documented in a _______ that is routinely updated

procedures manuel

if an auditor is unable to perform the audit procedures necessary to determine whether the statements are prepared in accorance with GAAP?

the auditor must issue a disclaimer of opinion

the bank statement is reconciled when the true cash balance is the same when determined from two different perspectives and ________

unadjusted bank balance is adjusted to equal the true cash balance

when a bank collects an account receivable for a depositor,

the depositor is notified through a credit memo that is included with the bank statement

keeping a record of the serial number on a computer and the name of the individual that is responsible for the equipment is ?

an example of a physical control

without opportunity, _____ could not exist

fraud

Pizza oven, land, filing cabinet, silver mine, office building, drill press, oil well, and desk are examples of ?

tangible long-term operational assets

franchise, copyright, patent, and goodwill are examples of

intangible long term operational assets

term used to describe the process of expense recognition for property, plant, and equipment

depreciation

a bank reconciliation normally begins with the ?

unadjusted bank balance

when a bank charges depositors for services or failure to maintain a specific balance the depositor is notified through a ______ that is included with the bank statement

debit memo

when auditors find that, for the most part, the company’s financial statements are in compliance with GAAP, but they have reservations about something in the statements a ____ opinion will be issued

qualified

at any specific point in time, there is ____ true bank balance

only one

decrease the amount a customer owes (reducing accounts receivable)

used for returns, overcharges, and damaged goods

credit memo

increase the amount a customer owes (increasing accts. receivable)

used for undercharges, additional services, or errors that caused too low an invoice

debit memos

a penalty that banks deduct for failure to maintain a specific minimum cash balance is an example of a _______ that the depositor deducts from the unadjusted book balance

service charge

the salvage value of an asset is the ?

expected market value of a fully depreciated asset

the expensing of natural resources is called

depletion

assets that have a physical presences that enables them to be seen and touches are called ______

tangible assets

______________ includes land, buildings, and computers

property, plant, and equipment

writings, musical composition, works of art, and other intellectual property are protected for the exclusive benefit of the creater and or persons assigned by ?

a copyright

land has _____ life

infinite

______ used when recognizing expenses for intangible assets with identifiable useful lives

amortization

the number of years that a company expects to use a depreciable assests is ?

the estimate useful life

cost of a building include?

renovation costs, purchase price, and realtor commissions

natural resources normally classified as __?

long-term assets

method of depreciation that produces more expense in the early years and less in the later years of an assets life

double-declining balance

when a company extends credit for a long period of time, the parties frequently enter into a credit agreement, the terms of which are legally documents in a ______?

promissory note

person responsible for making payment on the due date

maker

person to whom the note is made payable

payee

amount of money loaned by the payee to the maker of the note

principal

investing in a note (loaning money) receivable will be

an asset exchange transaction

journal entry to record an investment in a note receivable will be

debit to notes receivable and a credit to cash

example of an event that had no effects on the amount of total assets or net income but did cause a cash outflow from investing activities:

loaning money with a three-year term to maturity

recognizing accrued interest is an?

asset source transaction

business typically recorded accrued interest ______

when it is due or when it is time to prepare financial statements

recognizing accrued interest revenue affects ?

balance sheet, income statement, and statement of changes in stockholders equity

Internal control is a process designed to ensure?

• 
  

  reliable financial reporting.

• effective and efficient operations.

• compliance with applicable laws and regulations.

widely recognized source of pressure to commit fraud in the business enviroment come from?

intimidation from superiors

a strong set of internal controls is designed to minimize ?

opportunity

_____ is NOT a factor that motivates fraud

punishment

fraud triangle

pressure, opportunity, and rationalization

AICPA

articles of american institute of certified public accounts

AICPA code of professional conduct:

members must act in a way that will serve public institution,

members must avoid conflicts of int. that threaten their objectivity or independence,
members must conduct their activites with integrity so as to maintain or broaden public confidence in the profession.

auditors are responsible for?

providing reasonable assurance that statements are free from materials misstatements, whether caused by errors or fraud

an _____ is material if knowing about it would influence the opinion of the aug. prudent investor

error

is the least favorable opinion issued by the external auditor

adverse opinion

a ______ is the most favored opinion issued by external auditors

unqualified opinion

an unqualified audit opinion states:

that the financial statement data are materially correct

accts receivabe turnover ratio is calculated by ?

dividing amount of credit sales by the avg. balance of accts. receivable

An operating cycle is the length of time it takes to convert inventory to accounts receivable plus

the time it takes to convert the account receivable back to cash.

The cost of land is not ?

depreciated (nor expensed by any means)

straight line depreciation expense :

(cost - salvage value) / useful life

Double declining balance depreciation expenses:

(cost - accumulation depreciation) x 2/useful life

book value is also know as ?

carrying value

selling price - book value =

gain (loss)

the “floor” (minimum) for a book’s value is the asset’s?

salvage value

Interest =

Principal x ( interest rate / 12 ) x # of months the loan has been outstanding this year

Avg Days to Collect A/Rec

= 365 / AR Turnover

internal controls

policies/procedures implemented to provide reasonable assurance that enterprise objectives are accomplished

accounting controls

Designed to safeguard company assets & ensure reliable accounting records

administrative controls

designed to evaluate performance & assess compliance with company policies & public laws/regulations

a monthly _____ should be prepared by an independant party for controlling cash

bank reconciliation

the bank reconciliation reports on the differences between unadjusted cash balance on the bank statement and ?

unadjusted book balance in the general ledger cash account

deposits in transit

deposits added to a depositors books but not received and recorded by the bank prior to the date of the bank statement

outstanding checks

checks the depositor company has written and deducted from its cash account balance that had not yet been presented to its bank for payment

Every reconciling item that appears as an adjustment to the book balance section requires a _____ to bring the general ledger cash balance to the true cash balance.

journal entry

accounting controls example:

• Separation of Duties

• Bonded Employees

• Pre-numbered Documents

• Physical Controls

administration controls example:

• Quality of Employees

• Required Absences

• Procedures Manual

• Authority & Responsibility

• Performance Evaluations

how many systems can completely prevent fraud?

no systems

need to maintain sufficient cash balance for?

paying employees, paying suppliers, and paying other creditors

Managers should invest excess cash ?

in “earning assets,” or items/activities that generate returns or pay it out as dividends

cash and cash equivalents

Checks

Money orders

Bank drafts

Savings accounts that allow withdrawals without penalties

what is highly susceptible for embezzlement or theft?

cash

cogs and inventory are highly susceptible for

fraud

The importance of ethics:

The accountant’s role requires trust and credibility.

Accounting information is worthless if the accountant is not trustworthy or is

incompetent.

Therefore, the accounting profession requires high ethical standards – a CPA

“assumes an obligation of self-discipline above and beyond requirements of

laws and regulations.”

allowance for doubtful accounts always paired with?

accounts receivable

uncollected accounts expense represents the _______ associated with accounts receivable

estimated cost

maturity date

date on which borrower must repay the principal along with interest