ACCT 001 Lecture Notes - Lecture 9: Balance Sheet, Financial Statement, Internal Control
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Question 14 pts
The five components to a system of internal controls include all of the following except:
| control procedure |
| risk assessment |
| safeguarding assets |
| monitoring controls |
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Question 24 pts
An automobile company testing brakes on new vehicles is part of:
| control procedure |
| risk assessment |
| information systems |
| monitoring controls |
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Question 34 pts
Which account would we debit to open a new petty cash fund?
| cash |
| petty cash |
| miscellaneous expense |
| petty cash expense |
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Question 44 pts
Our company established a petty cash fund with a balance of $200. We have petty cash receipts for travel expenses that total $125. We have counted petty cash and found that we were $2 short. Which of the following would be included in the entry to replenish the fund?
| a credit to petty cash for $127 |
| a debit to travel expenses for $125 |
| a credit to cash over and short for $2 |
| a credit to cash for $125 |
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Question 54 pts
On a bank reconciliation, which of the following will not appear as a deduction on a bank statement?
| deposit |
| NSF check (non-sufficient funds) |
| service charge |
| Payments made by EFT (electronic fund transfer) |
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Question 64 pts
Our company received a bank statement with a balance of $10,000. The reconciling items include outstanding checks that totaled $2,000 and a deposit in transit of $1,000. What is the adjusted bank balance after we complete the bank reconciliation?
| $7,000 |
| $9,000 |
| $11,000 |
| $13,000 |
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Question 74 pts
Our company has decided to write off an uncollectible account of $3,000. What account would we credit to record bad debt expense if our company uses the direct write-off method for bad debts?
| bad debt expense |
| accounts receivable |
| allowance for doubtful accounts |
| cash |
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Question 84 pts
Where does allowance for doubtful accounts appear on our financial statements?
| on balance sheet as a current liability |
| on income statement as part of cost of goods sold |
| on balance sheet as a contra asset related to accounts receivable |
| on the statement of retained earnings as a deduction from net income |
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Question 94 pts
At the end of 2018, we have a credit balance of $10,000 in allowance for doubtful accounts before the adjusting entry for bad debts expense. The company uses the percentage of sales method to estimate bad debt expense. The company estimates that 3% of net credit sales will be uncollectible for the year. Net credit sales for the year amounted to $1,000,000. What account and amount would we debit to record the adjusting entry for bad debt expense?
| bad debt expense, $30,000 |
| allowance for doubtful accounts, $30,000 |
| bad debt expense, $20,000 |
| accounts receivable, $20,000 |
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Question 104 pts
On July 1, 2017, our company accepts a 9-month 5% note for $12,000. What account and amount would we debit when we record the year-end adjusting entry on December 31, 2017?
| interest revenue, $300 |
| interest revenue, $350 |
| interest receivable, $300 |
| interest receivable, $350 |
Financial Accounting, 14th Edition
Carl S. Warren; Jim Reeve; Jonathan Duchac
Final_Multiple choice
1. The primary objectives of control over inventory are
a.safeguarding the inventory from damage and maintainingconstant observation of the inventory
b.reporting inventory in the financial statements
c.maintaining constant observation of the inventory andreporting inventory in the financial statements
d.safeguarding inventory from damage and reporting inventory inthe financial statements
2. When merchandise sold is assumed to be in the order in whichthe purchases were made, the company is using
a.first-in, last-out
b.first-in, first-out
c.last-in, first-out
d.average cost
3. Use the information below to answer the followingquestion.
The Boxwood Company sells blankets for $60 each. The following wastaken from the inventory records during May. The company had nobeginning inventory on May 1.
| Date | Blankets | Units | Cost |
| May 3 | Purchase | 5 | $20 |
| 10 | Sale | 3 | |
| 17 | Purchase | 10 | $24 |
| 20 | Sale | 6 | |
| 23 | Sale | 3 | |
| 30 | Purchase | 10 | $30 |
Assuming that the company uses the perpetual inventory system,determine the gross profit for the sale of May 23 using the FIFOinventory cost method.
a.$72
b.$108
c.$180
d.$120
4.If merchandise inventory is being valued at cost and thepurchase price is steadily falling, which method of costing willyield the largest net income?
a.FIFO
b.LIFO
c.average cost
d.weighted average
5.Stevens Company started the year with an inventory cost of$145,000. During the month of January, Stevens purchased inventorythat cost $53,000. January sales totaled $140,000. Estimated grossprofit is 35%. The estimated ending inventory as of January 31is
a.$58,000
b.$107,000
c.$69,300
d.$91,000
6. Which one of the following below is not anelement of internal control?
a.risk assessment
b.cost-benefit considerations
c.monitoring
d.information and communication
7. A check drawn by a company for $340 in payment of a liabilitywas recorded in the journal as $430. What entry is required in thecompany's accounts?
a.debit Cash; credit Accounts Receivable
b.debit Accounts Receivable; credit Cash
c.debit Accounts Payable; credit Cash
d.debit Cash; credit Accounts Payable
8. A bank reconciliation should be prepared
a.to explain any difference between the company's balance perbooks with the balance per bank
b.by the company's bank
c.whenever the bank refuses to lend the company money
d.by the person who is authorized to sign checks
9.
Pilger Corporation has cash on hand at year-end of $201,000 anda negative cash flow from operations of $144,000. What is the ratioof cash to monthly cash expenses?
a.1.4 months
b.7.2 months
c.12.0 months
d.16.8 months
10. When does an account become uncollectible?
a.when accounts receivable is converted into notesreceivable
b.when a discount is availed on notes receivable
c.at the end of the fiscal year
d.there is no general rule for when an account becomesuncollectible
11.On the balance sheet, the amount shown for the Allowance forDoubtful Accounts is equal to the
a.total estimated uncollectible accounts as of the end of theyear
b.sum of all accounts that are past due
c.total of the accounts receivables written-off during theyear
d.uncollectible accounts expense for the year
12. Allowance for Doubtful Accounts has a debit balance of $600at the end of the year (before adjustment), and an analysis ofaccounts in the customers ledger indicates uncollectiblereceivables of $13,000. Which of the following entries records theproper adjusting entry for bad debt expense?
a.debit Allowance for Doubtful Accounts, $600; credit Bad DebtExpense, $600
b.debit Bad Debt Expense, $600; credit Allowance for DoubtfulAccounts, $600
c.debit Bad Debt Expense, $13,600; credit Allowance for DoubtfulAccounts, $13,600
d.debit Bad Debt Expense, $12,400; credit Allowance for DoubtfulAccounts, $12,400
13. When comparing the direct write-off method and the allowancemethod of accounting for uncollectible receivables, a majordifference is that the direct write-off method
a.is used primarily by small companies with few receivables
b.is used primarily by large companies with many receivables
c.uses an allowance account
d.uses a percentage of sales method to estimate uncollectibleaccounts
14. Accumulated Depreciation
a. is used to show the amount of cost expiration ofintangibles
b.is used to show the amount of cost expiration of naturalresources
c.is the same as Depreciation Expense
d.is a contra asset account
15. Equipment with a cost of $220,000 has an estimated residualvalue of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method. What is theamount of depreciation for the first full year, during which theequipment was used 2,100 hours?
a.$19,000
b.$21,000
c.$30,000
d.$22,000
16. The process of transferring the cost of metal ores and otherminerals removed from the earth to an expense account is called
a.depreciation
b.depletion
c.amortization
d.deferral
17. The Bacon Company acquired new machinery with a price of$15,200 by trading in similar old machinery and paying $12,700. Theold machinery originally cost $9,000 and had accumulateddepreciation of $5,000. In recording this transaction, BaconCompany should record
a.a loss of $1,500
b.the new machinery at $12,700
c.a gain of $1,500
d.the new machinery at $16,700
18. Assuming a 360-day year, when a $50,000, 90-day, 9%interest-bearing note payable matures, total payment will be
a.$54,500
b.$4,500
c.$1,125
d.$51,125
19. Which of the following is required to be withheld fromemployee's gross pay?
a.only federal income tax
b.both federal and state unemployment compensation taxes
c.only state unemployment compensation tax
d.only federal unemployment compensation tax
20. Hall Company sells merchandise with a one-year warranty. Inthe current year, sales consisted of 4,500 units. It is estimatedthat warranty repairs will average $10 per unit sold, and 30% ofthe repairs will be made in the current year and 70% in the nextyear. In the current year's income statement, Hall should showwarranty expense of
a.$45,000
b.$0
c.$13,500
d.$31,500
21. Which of the following below is not acharacteristic of a limited liability company?
a.limited legal liability
b.unlimited life
c.taxable
d.moderate ability to raise capital
22. Seth and Beth have original investments of $50,000 and$100,000 respectively in a partnership. The articles of partnershipinclude the following provisions regarding the division of netincome: interest on original investment at 10%; salary allowancesof $27,000 and $18,000, respectively; and the remainder to bedivided equally. How much of the net income of $42,000 is allocatedto Seth?
a.$20,000
b.$23,000
c.$32,000
d.$0
23. Which of the following is not a rightpossessed by common stockholders of a corporation?
a.the right to share in assets upon liquidation
b.the right to receive a minimum amount of dividends
c.the right to sell their stock to anyone they choose
d.the right to vote in the election of the board ofdirectors
24. The charter of a corporation provides for the issuance of100,000 shares of common stock. Assume that 45,000 shares wereoriginally issued and 5,000 were subsequently reacquired. What isthe amount of cash dividends to be paid if a $2 per share dividendis declared?
a.$80,000
b.$100,00
c.$90,000
d.$10,000
25.Which statement below is not a reason for acorporation to buy back its own stock?
a.to increase the shares outstanding
b.for supporting the market price of the stock
c.resale to employees
d.bonus to employees
Solve the following QS and Exercises from your textbook in chapter 8.
QS 8-1
Internal control objectives
An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.
| ____ | 1. | Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud. |
| ____ | 2. | The primary objective of internal control procedures is to safeguard the business against theft from government agencies. |
| ____ | 3. | The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft. |
| ____ | 4. | Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself. |
QS 8-2
Cash and equivalents
Choose from the following list of terms/phrases to best complete the following statements.
| a. | Cash |
| b. | Cash equivalents |
| c. | Outstanding check |
| d. | Liquidity |
| e. | Bank reconciliation |
| f. | Current assets |
| ____ | 1. | The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts. |
| ____ | 2. | The term __________ refers to a companyâs ability to pay for its near-term obligations |
| ____ | 3. | The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes. |
QS 8-3
Internal control for cash
A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.
| ____ | a. | A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly. |
| ____ | b. | A voucher system of control is a control system exclusively for cash receipts. |
| ____ | c. | A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records. |
| ____ | d. | A petty cash system is not a control procedure for safeguarding cash. |
QS 8-4
Petty cash accounting
| 1. | The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period. |
| 2. | Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry. |
| ____ | a. | Fund amount is being reduced | |
| ____ | b. | Fund amount is being increased | |
| ____ | c. | Fund is being eliminated | |
| ____ | d. | Fund is being established |
Exercise 8-13A
Documents in a voucher system
Match each document in a voucher system in column one with its description in column two.
Document
| 1. | Purchase requisition |
| 2. | Purchase order |
| 3. | Invoice |
| 4. | Receiving report |
| 5. | Invoice approval |
| 6. | Voucher |
Description
| ____ | A. | An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale. |
| ____ | B. | An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded. |
| ____ | B. | An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded. |
| ____ | C. | A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms. |
| ____ | D. | A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization. |
| ____ | E. | A document used by department managers to inform the purchasing department to place an order with a vendor. |
| ____ | F. | A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods. |
Exercise 8-14B
Record invoices at gross or net amounts
Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.
| Oct. | 2 | Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30. |
| 10 | Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2. | |
| 17 | Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30. | |
| 27 | Paid for the merchandise purchased on October 17, less the discount. | |
| 31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you |
