ACCT201 Chapters 4-6

Managers use an internal control system:

a) To guarantee a return to investors.

b) Only if the company uses a computerized system.

c) To ensure profitable operations.

d) To eliminate the need for an audit.

e) To monitor and control business activities.

d) To eliminate the need for an audit.

The voucher system of control:

a) Applies only when multiple purchases are made from the same supplier.

b) Is a set of procedures and approvals designed to control cash receipts and the acceptance of liabilities.

c) Establishes procedures for receiving checks for the sale of verified, approved, and recorded activities.

d) Is required in large companies but not beneficial for small to mid-sized companies.

e) Establishes procedures for verifying, approving, and recording liabilities for cash payment.

d) Is required in large companies but not beneficial for small to mid-sized companies.

The Sarbanes-Oxley Act (SOX) requires managers and auditors of companies whose stock is traded on an exchange to document and verify internal controls.

a) True

b) False

a) True

Easton Company 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:

Cash account = $63,709 (debit)

Bank statement = $61,149

Deposit in transit = $4,850

Outstanding checks = $2,275

Check printing fee = $22

Interest earned = $37

The adjusted cash balance should be:

a) $65,999

b) $63,746

c) $63,724

d) $63,687

e) $58,874

b) $63,746

During July, Clanton Industries issued a check for $889 to a supplier. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

a) Add the check amount to the bank balance.

b) Add the check amount to the book balance of cash.

c) Deduct the check amount from the book balance of cash.

d) Deduct the check amount from the bank balance.

e) Make a journal entry in the company records for an error.

d) Deduct the check amount from the bank balance.

The internal document prepared by a department manager that lists the merchandise requested to be purchased is a(n):

a) Receiving report.

b) Purchase order.

c) Invoice.

d) Purchase requisition.

e) Invoice approval.

d) Purchase requisition.

A company had $27 missing from petty cash that was not accounted for by receipts. The correct procedure is to:

a) Debit Cash for $27.

b) Debit Cash Over and Short for $27.

c) Credit Cash Over and Short for $27.

d) Credit Petty Cash for $27.

e) Debit Petty Cash for $27.

b) Debit Cash Over and Short for $27.

The use of internal controls provides a guarantee against all types of loss.

a) True

b) False

b) False

Internal control procedures for cash receipts do not require that:

a) An employee with no access to cash receipts should compare the total cash recorded by the register with the record of cash receipts reported by the cashier.

b) All cash collections for sales are received immediately upon making the sales.

c) Handling of cash is kept separate from its recordkeeping.

d) Clerks having access to cash should not have access to register tapes or files.

e) Cash sales should be recorded on a cash register at the time of each sale.

b) All cash collections for sales are received immediately upon making the sales.

Spencer Company has a $220 petty cash fund. Receipts show $45 parking, $135 janitorial, $14 postage; balance of $26 remains. The reimbursement entry includes a:

a) Credit to Cash Over and Short for $26.

b) Credit to Cash for $194.

c) Credit to Janitorial Expense for $135.

d) Debit to Cash Over and Short for $26.

e) Debit to Petty Cash for $220.

b) Credit to Cash for $194.

Which internal control principle prescribes the use of pre-numbered sales slips?

a) Divide responsibility for related transactions.

b) Apply technological controls.

c) Establish responsibilities.

d) Perform regular and independent reviews.

e) Maintain adequate records

e) Maintain adequate records

Purchasing insurance against theft by employees who frequently handle cash follows which principle of internal control?

a) Separate recordkeeping from custody of assets.

b) Insure assets and bond key employees.

c) Establish responsibilities.

d) Apply technological controls.

e) Maintain adequate records.

b) Insure assets and bond key employees.

Which of the following is not included on a bank statement?

a) List of outstanding checks and deposits in transit that are currently unprocessed.

b) Beginning-of-period account balance.

c) Deposits and other increases to the account during the period.

d) Withdrawals and other decreases to the account during the period.

e) End-of-period account balance.

a) List of outstanding checks and deposits in transit that are currently unprocessed.

Birch Company information at Dec 31:Cash in registers $2,850; Investment maturing in 9 years $15,600; A/R $1,625; Cash in bank $23,031; A/P $710; Petty cash $260; Postage stamps $24; U.S. T-bill (15 days) $10,600.Cash and Cash Equivalents = ?

a) $41,765

b) $36,741

c) $39,076

d) $37,656

e) $52,341

b) $36,741

Which procedure would weaken control over cash receipts that arrive through the mail?

a) For safety, only one person should open the mail and deposit the cash at month-end.

b) After opening mail, prepare a triplicate list of money received with sender, amount, and reason.

c) Bond employees handling cash.

d) Cashier deposits money and recordkeeper records it.

e) Bank reconciliation prepared by person who does not handle cash.

a) For safety, only one person should open the mail and deposit the cash at month-end.

Two clerks sharing the same cash register violates which principle?

a) Establish responsibilities.

b) Apply technological controls.

c) Maintain adequate records.

d) Insure assets.

e) Bond key employees.

a) Establish responsibilities.

On a bank reconciliation, a bank fee for check printing not yet recorded is:

a) Ignored

b) Deducted from the bank balance of cash.

c) Deducted from the book balance of cash.

d) Added to the bank balance of cash.

e) Added to the book balance of cash.

c) Deducted from the book balance of cash.

Net sales $29,800 and A/R $4,400. Days' sales uncollected = ? (365 days)

a) 45.89 days

b) 6.77 days

c) 69.19 days

d) 65.09 days

e) 53.89 days

e) 53.89 days

A more secure type of accounting ledger that is continuously and simultaneously updated and verified is known as:

a) A DOS ledger.

b) An electronic funds transfer (EFT).

c) A bank reconciliation.

d) A balance sheet.

e) A blockchain ledger.

e) A blockchain ledger.

Great Falls Company bank reconciliation ( Feb 28 ): Bank $38,643; Book $39,053; Deposit in transit $3,450; Outstanding checks $2,230; Note collection $845; Check printing $35.One journal entry required includes:

a) Debit Notes Payable $845; credit Cash $845

.b) Debit Cash $3,450; credit Sales $3,450.

c) Debit Cash $845; credit Notes Receivable $845.

d) Debit Cash $3,450; credit Accounts Receivable $3,450

e) Debit Miscellaneous Expense $35; credit Accounts Payable $35.

c) Debit Cash $845; credit Notes Receivable $845.

Companies never take a physical count of inventory, but rather solely rely on inventory records to determine the inventory value.

a) True

b) False

b) False

The cost flow method chosen must match the actual physical flow of the goods.

a) True

b) False

b) False

The simple rule for inventory turnover is that a low ratio is preferable.

a) True

b) False

b) False

The inventory turnover ratio:

a) Tells how many times a company turns over (sells) its inventory in a period.

b) Is used to analyze collectability.

c) Reveals how many days a company can sell inventory if no new merchandise is purchased.

d) Is used to measure solvency.

a) Tells how many times a company turns over (sells) its inventory in a period.

If the shipping terms are FOB destination, then goods are included in the buyer's inventory after arrival at the destination.

a) True

b) False

b) False

In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.

a) True

b) False

b) False

The inventory costing method that results in the lowest taxable income in a period of rising costs is:

a) Weighted-average cost method

b) LIFO method

c) FIFO method

d) Gross profit method

e) Specific identification method

b) LIFO method

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

a) Net purchases during the period and ending inventory

b) Beginning inventory and cost of goods sold

c) Beginning inventory and net purchases during the period

d) Ending inventory and beginning inventory

e) Ending inventory and cost of goods sold

e) Ending inventory and cost of goods sold

The choice of costing method will impact both the balance sheet and the income statement.

a) True

b) False

a) True

Giorgio had cost of goods sold of $9,637 million, ending inventory of $2,305 million, and average inventory of $2,181 million. Its inventory turnover equals:

a) 82.6 days

b) 0.24

c) 4.42

d) 4.18

e) 87.3 days

c) 4.42

The cost of an inventory item includes its invoice cost minus any discount, plus any other costs, such as shipping, storage, import duties, and insurance.

a) True

b) False

a) True

Lower of cost or market:

a) Reports all inventory items at full cost

b) Records only an increase in inventory value

c) Is only applicable to companies using LIFO

d) Can be applied to each individual item, major categories of items, or the whole inventory

e) Is only applicable to companies using FIFO

d) Can be applied to each individual item, major categories of items, or the whole inventory

Physical counts of inventory:

a) Requires the use of hand-held portable computers

b) Must be taken at least once a month

c) Are used to adjust the Inventory account balance to the actual inventory available

d) Are not necessary under the perpetual system

e) Are not necessary under the cost-to-benefit constraint

c) Are used to adjust the Inventory account balance to the actual inventory available

An error in the ending inventory balance will cause an error in the calculation of cost of goods sold.

a) True

b) False

a) True

Hasham purchases inventory from overseas and incurs the following costs: the merchandise cost is $80,000, credit terms 1/10, n/30, applicable only to the $80,000; FOB shipping point freight charges are $2,500; insurance during transit is $300; and import duties are $1,500. Hasham paid within the discount period. Compute the cost that should be assigned to the inventory.

a) $81,000

b) $79,200

c) $83,500

d) $81,700

e) $84,300

c) $83,500

Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.

a) True

b) False

b) False

The LIFO method of inventory costing better matches current costs with revenues.

a) True

b) False

a) True

Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

a) True

b) False

b) false

LIFO assumes that inventory costs flow in the order incurred.

a) true

b) false

b) false

Which of the following costs is not included in the Merchandise Inventory account?

a) Insurance

b) Import duties

c) Invoice price minus any discount

d) Storage

e) Damaged inventory that cannot be sold

e) Damaged inventory that cannot be sold

Quick assets are defined as:

a) Cash, noncurrent receivables, and prepaid expenses.

b) Cash, short-term investments, and current receivables.

c) Accounts receivable, inventory, and prepaid expenses.

d) Cash, short-term investments, and accounts payable.

e) Cash, inventory, and current receivables.

B) Cash, short-term investments, and current receivables.

FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

a) True

b) False

B) false

A perpetual inventory system records cost of goods sold at the time of each sale.

a) True

b) False

A) true

Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to close the accounts during the closing process.

a) True

b) False

B) false

A company had net sales of $372,000 and cost of goods sold of $211,000. Its gross profit equals $161,000

a) True

b) False

a) true

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

a) 30% discount if paid within 10 days.

b) 2% discount if paid within 30 days.

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

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

e) 30% discount if paid within 2 days.

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

The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.

a) True

b) False

a) true

Cost of goods sold is also called cost of sales.

a) True

b) False

a) true

In a periodic inventory system, the cost of goods sold is determined at the end of the period.

a) True

b) False

a) true

The inventory system that maintains a running record of the cost of goods available for sale and cost of goods sold is called the periodic inventory system.

a) True

b) False

b) false

Gross profit is determined by subtracting operating expenses from net sales.

a) True

b) False

b) false

Under the perpetual inventory system, the account used to record the cost of merchandise purchased is called "Purchases."

a) True

b) False

b) false

Credit terms of 1/15, n/45 mean that:

a) The customer can take a 1% discount if payment is made within 45 days.

b) The customer can take a 1% discount if payment is made within 15 days; otherwise, the full amount is due within 45 days.

c) The customer must pay 15% interest if paid after 45 days.

d) The customer can take a 45% discount if payment is made within 15 days.

e) None of the above.

b) The customer can take a 1% discount if payment is made within 15 days; otherwise, the full amount is due within 45 days.

A sales return is recorded when merchandise that was sold is returned by a customer.

a) True

b) False

a) true

The sales discount account normally has a debit balance.

a) True

b) False

a) true

Gross profit is also called gross margin.

a) True

b) False

a) true

The single-step income statement format lists all revenues together and all expenses together.

a) True

b) False

a) true

Freight terms of FOB destination mean that the seller is responsible for paying shipping costs.

a) True

b) False

a) true

The periodic inventory system requires updating the inventory account only at the end of the period.

a) True

b) False