financial accounting exam 2 review Rutgers

Q 6.41: Companies that want to maximize the current assets section of the balance sheet will use which inventory cost flow method during deflationary periods?

LIFO

Which equation is true regarding inventory?

Ending Inventory + Cost of Goods Sold = Cost of Goods Available for Sale

Which of the following statements is true?

The first-in, first-out (FIFO) method results in an ending inventory valued at the most recent cost.

Freight costs to sell goods are characterized as what type of cost?

SELLING

Constant Company uses ________ for income tax purposes and financial reporting purposes. This is an example of the __________.

LIFO; LIFO conformity rule.

Which of the following statements is true about the specific identification method of costing inventories?

It tracks the actual physical flow of the goods available for sale.

If the unit cost of inventory is increasing during a period and all units are not sold,

a company using the LIFO method will report less gross profit for the period than if it had used the FIFO method.

In periods of rising prices, which inventory method results in the inventory value reported on the balance sheet being closest to current cost?

FIFO

which should they pick if they want their method to match the physical movement of goods?

FIFO

CORRECT

There is no accounting requirement that the cost flow assumption be consistent with the physical movement of the goods.

When is the specific identification method of inventory costing desirable?

When a company sells a limited number of high-unit-cost items.

Specific identification would be most desirable when a company sells a limited variety of high unit cost items that could be identified clearly from time of purchase through time of sale.

GROSS PROFIT RATE

NET SALE- COGS)/NET SALE

An error on both the Balance Sheet and the Income Statement can occur when:

an organization fails to count or value inventory correctly.

WHICH of the following statements regarding external auditors is true?

They are hired by a company to evaluate the effectiveness of internal controls.

A small business owner has two employees but each employee has a separate cash register drawer. This situation can be viewed as

supporting establishment of responsibility.

What does the term "bonding" mean when it refers to employees?

They have been insured against misappropriation of assets.

Which of the following is an example of an electronic funds transfer

This is correct answer :

D

Sending payroll data directly to banks for direct deposit to employee accounts.

Which of the following would be the appropriate treatment on a bank reconciliation if a check correctly written and paid by the bank for $734 had been incorrectly recorded on the company's books for $743?

add $9 to the book's balance

By having a separate bank account for ________, Nash Company can increase control and improve operational efficiencies.

payroll

A bank reconciliation shows that a deposited check has been returned marked NSF. What should be done?

Deduct the amount of the check from the cash account and pursue collection.

On a bank statement, how is a cash deposit shown?

A customer's deposit will be reflected as a credit to their account.

The extent of internal control features adopted by a company must be evaluated in terms of ___________.

cost-benefit.

If an accounts payable clerk also approves new vendors, this situation would violate

segregation of duties.

The information technology department of Biotech International, Inc. frequently compares data from the employee online check-in system to payroll records to ensure that employees are being paid for actual time worked. Which component of internal control is being illustrated?

monitor

Empire Associates distributes a policy and procedures manual to each new employee on their first day. Which component of internal control does Empire address by this practice?

information and communication

Eric Hansen is a receiving clerk who has just been denied a raise. He has approached his subordinate, who is the new storeroom clerk, about diverting inventory to sell for personal gain. This example of ________ may lead to _________.

the

human element; collusion.

Fred is in the pre-employment verification phase that Honesty Enterprises conducts for potential hires. Honesty will require Fred to provide a urine sample and will also check his references. Which type of control activity is Honesty Enterprises performing?

This is correct answer :

A

human resource controls

What happens when a note receivable is dishonored?

Accounts Receivable is debited if eventual collection is expected.

What is the effect of the collection of an account that had been previously written off under the allowance method of accounting?

It does not affect income in the period it is collected.

Opportunities for fraud are ________ when a(n) ________ also handles cash.

increased; accounts receivable clerk

Notes receivable are written promises that are considered

formal instruments of credit.

Q 8.60: On June 1st, Arlo Industries writes Beta Manufacturing a $5,000, 2-month, 10% promissory note to settle an account. On the same date, Beta records a $5,083 debit to Notes Receivable, an $83 credit to Interest Revenue, and a $5,000 credit to Accounts Receivable in its books. In this scenario, Beta's actions

violate the revenue recognition principle.

A ________ of a note debits Cash and credits Notes Payable, while the ________ debits Notes Receivable and credits Cash when a note is issued.

maker; payee

Temple Company receives a note receivable from a customer for $2,400. Temple later experiences cash flow problems. Through which process does Temple sell the note?

endorsement

Under which circumstances would it be most appropriate to use an aging schedule

A company uses the percentage-of-receivables basis to calculate the Bad Debt Expense adjusting entry under the allowance method.

When a customer uses a national credit card to make a purchase at a retail store, the

retailer is essentially selling (factoring) the receivable.

How does a sale of receivables impact a company's operating cycle?

This is correct answer :

D

It shortens the operating cycle.

Henson Company uses the allowance method of writing off receivables. It wrote off a receivable of $2,100 from Cook Company on May 3rd of the current year. Journalize the entry to reinstate the receivable on September 16th.

acct recei/ allowance

Why are national credit card sales considered cash sales even though cash is not received at the time the transaction is carried out?

Because the credit card issuer quickly issues cash to the retailer.

Companies that sell their receivables can eliminate ________ if the cost of selling the receivables is ________ than the in-house processing costs.

the accounts receivable department; less

Unlike the allowance method, the direct write-off method

is forbidden by GAAP because it does not attempt to match expenses with revenues.

The allowance method of accounting for bad debts involves estimating uncollectible accounts at the end of each period. This provides better matching of expenses with revenues on the income statement. It also ensures that companies state receivables on the balance sheet at their cash (net) realizable value. Cash (net) realizable value is the net amount the company expects to receive in cash. It excludes amounts that the company estimates it will not collect. Thus, this method reduces receivables in the balance sheet by the amount of estimated uncollectible receivables.

plant assets

under ()property, plant, and equipment, plant and equipment, fixed assets(plant assets and natural resource)

-physical substance

-use in operation

-not intend for sale

-expect to be use