ACCT 2301 Lecture 7: Notes Chapter 7 and 8

Question 14 pts

The five components to a system of internal controls include all of the following except:

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Question 24 pts

An automobile company testing brakes on new vehicles is part of:

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Question 34 pts

Which account would we debit to open a new petty cash fund?

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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?

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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?

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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?

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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?

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Question 84 pts

Where does allowance for doubtful accounts appear on our financial statements?

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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?

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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?

1. As of December 31, 2000, DaltonCompany has $7,240 cash in its checking account, as well as severalother items listed below:

Bank credit card slips signed by customers $ 900

Money market fund balance 4,000

Investment in US Treasury bills 10,000

Checks received from customers, but not

yet deposited in the bank 700

Investment in ATT 10% bonds, maturing June2001 15,000

What amount should be shown in Dalton's December 31,2000, balance sheet as "Cash and cash equivalents"?

A) $15,600.

B) $22,840

C) $37,840

D) $30,600

The Cash account in the ledger of Townhouse Co. shows a balanceof $16,526 at September 30. The bank statement, however, shows abalance of $20,900 at the same date. The only reconciling itemsconsist of a bank service charge of $6, a large number ofoutstanding checks totaling $5,930, and a deposit in transit.

2. Refer to the abovedata. What is the adjusted cash balance in the September30 bank reconciliation?

Answer A) $10,590.

B) $16,520.

C) $14,970

D) $14,964

3. Silbey Inc. had accounts receivable of$200,000 and an allowance for doubtful accounts of $8,700 justbefore writing off as worthless an account receivable from WalleyCompany of $1,200. After writing off this receivable what would bethe balance in Silbey's Allowance for Doubtful Accounts?

Answer A) $8,700 creditbalance.

B) $9,900 credit balance.

C) $7,500 credit balance.

D) $7,500 debit balance.

4. At the start of the current year, AcquaCorporation had a credit balance in the Allowance for DoubtfulAccounts of $1,200. During the year a monthly provision of 2% ofsales was made for uncollectible accounts. Sales for the year were$400,000, and $7,400 of accounts receivable were written off asworthless. No recoveries of accounts previously written off weremade during the year. The year-end financial statements shouldshow:

A) Uncollectible accountsexpense of $15,400.

B) Allowance forDoubtful Accounts with a credit balance of $1,800.

C) Allowance forDoubtful Accounts with a credit balance of $8,600.

D) Uncollectibleaccounts expense of $7,400.

5. Vector Corporation invested $290,000cash in available-for-sale marketable securities in earlyDecember. On December 31, the quoted market price forthese securities is $307,000. Which of the followingstatements is correct?

Answer A) Vector'sDecember income statement includes a $17,000 gain oninvestments.

B) If Vector sellsthese investments on January 2 for $300,000, it will report a lossof $7,000.

C) Vector's December 31balance sheet reports marketable securities at $290,000 and anUnrealized Holding Gain on investments of $17,000.

D) Vector's December 31balance sheet reports marketable securities at $307,000 and anUnrealized Holding Gain on Investments of $17,000.

.

6. On June 1, 2001, Swift Company acquired a 10%, ten-month notereceivable from a customer in settlement of an existing accountreceivable of $120,000. Interest and principal are due atmaturity.

8. Refer to the abovedata. The proper adjusting entry at December 31, 2001,with regard to this note receivable includes a:

A) Debit to Cash of $7,000.

B) Debit to NotesReceivable of $12,000.

C) Credit to InterestRevenue of $12,000.

D) Debit to AccruedInterest Receivable of $7,000.

7. In order to achieve internal controlover cash receipts:

A) The employee who handleschecks received in the mail should not prepare the controllisting.

B) The cashier shouldnot deposit cash in the bank.

C) The salesclerkshould not count the cash in the register at the end of theday.

D) The checks receivedin the mail from customers should not be sent to the accountingdepartment to be recorded as cash receipts.

Use the following to answer questions 8 - 9:

On November 1, 2000, Raceway Corporation sold land priced at$700,000 in exchange for a 12%, six-month note receivable.

8 Refer to the above data. Raceway'sbalance sheet at December 31, 2000, includes which of the followingas a result of the sale of land on November 1?

A) Notes Receivable of$700,000 and Interest Receivable of $14,000.

B) Notes Receivable of$742,000 and Interest Receivable of $14,000.

C) Notes Receivable of$700,000 and Interest Receivable of $42,000.

D) Notes Receivable of$700,000 only.

9. Refer to the above data. OnMay 1, 2001 (maturity date), the note is collected in full byRaceway Corporation. Assuming a fiscal year-end of December 31,Raceway recognizes which of the following in its income statementfor 2001 with regard to this note?

A) $742,000 sales revenue

B) $28,000 interest revenue.

C) $14,000 interest revenue

D) $42,000 interest revenue

10. When there is an Allowance for Doubtful Accountsin use, the writing-off of an uncollectible accounts receivablewill:

A). Reduce income

B) Reduce an expense

C). Not change income or totalassets

D). Increase totalassets

11. At the end of January, the unadjusted trialbalance of Windsor, Inc. included the following accounts:

Debit Credit

Sales (80% represent credit sales) 500,000

Accounts Receivable 340,000

Allowance for Doubtful Accounts 800

Refer to the above data. Windsor uses the balance sheet approachin estimating uncollectible accounts expense, and aging theaccounts receivable indicates the estimated uncollectible portionto be $7,400. What is the amount of uncollectible accounts expenserecognized in Windsor's income statement for January?

A). $7,400

B). $6,600

C). $8,200

D). Some otheramount

12. Deegan Industries has an accounts receivableturnover rate of 8. Which of the following statements is nottrue?

A). Deegan's accounts receivableare more liquid than those of a business whose accounts receivableturnover rate is 5

B). Deegan waits approximately 46days to make collections of its credit sales. (Use 365 days in ayear.)

C). Deegan writes off accountsreceivable as uncollectible if they are over 45 daysold.

D). Deegan's net credit sales are about eighttimes the amount of its average accounts receivable

13. Randall, Inc. uses the allowance method supportedby an aging of its accounts receivable to recognize uncollectibleaccounts expense in its financial statements. What method ofrecognizing this expense does Randall use in its income taxreturn?

A). It must use the same method

B). The direct write-offmethod

C). Either the balance sheet or incomestatement approach is acceptable.

D). None, since uncollectible accounts expenseis not deductible for income tax purposes

14. If a 15%, 60-day note receivable is acquired froma customer in settlement of an existing account receivable of$5,000, the accounting entry for acquisition of the note will:

A). Include a debit to Notes Receivable for$5,750

B). Include a debit to Notes Receivable for$5,062.50

C). Include a credit to Interest Revenue for$62.50.

D). Include a debit to Notes Receivable for$5,000 and no entry for interest

15. On June 1, 2009, Jensen Company acquired an 8%,ten-month note receivable from a customer in settlement of anexisting account receivable of $130,000. Interest and principal aredue at maturity. The company has a December 31st year-end. Jensen'sentry to record the collection of this note at maturity includesa:

A). Credit to Accrued Interest Receivable of$6,067

B). Credit to Interest Revenue of$6,067

C). Credit to Interest Receivable of$2,600

D). Credit to Notes Receivable of$140,400

Question 1

The balance of a control account in the general ledger

must equal the amount of total assets.

must equal the composite balance of individual accounts in arelated subsidiary ledger.

is always greater than the composite balance of individual accountsin a related subsidiary ledger.

must always be zero.
Question 2

The Foreign Corrupt Practices Act requires that all U.S.corporations under the juris-diction of the Securities and ExchangeCommission

have at least one foreign subsidiary.

must file reports with the National Commission on FraudulentFinancial Reporting.

maintain accounting records of foreign branches and subsidiaries inthe local foreign currency.

maintain an adequate system of internal control.

Question 3

Holliday Company's inventory records show the following data:
Units Unit Cost
Inventory, January 1 5,000 $9.00
Purchases: June 18 4,500 8.00
November 8 3,000 7.00

A physical inventory on December 31 shows 2,000 units on hand.Holliday sells the units for $12 each. The company has an effectivetax rate of 20%. Holliday uses the periodic inventory method.
Under the FIFO method, the December 31 inventory is valued at

$14,000.

$15,000.

$18,000.

$14,500.

Question 4

#4 A $100 petty cash fund has cash of $15 and receipts of $80. Thejournal entry to replenish the account would include a creditto

Cash for $85.

Cash for $80.

Petty Cash for $85.

Cash Over and Short for $5.

Question 5

Lee Industries had the following inventory transactions occurduring 2010:
Units Cost/unit
2/1/10 Purchase 18 $45
3/14/10 Purchase 31 $47
5/1/10 Purchase 22 $49

The company sold 51 units at $63 each and has a tax rate of 30%.Assuming that a periodic inventory system is used, what is thecompany's gross profit using FIFO? (rounded to whole dollars)

$772

$848

$2,441

$2,365








# 6 Wright sells softball equipment. On November 14, they shipped$1,000 worth of softball uniforms to Paola Middle School, terms2/10, n/30. On November 21, they received an order from DouglasHigh School for $600 worth of custom printed bats to be produced inDecember. On November 30, Paola Middle School returned $100 ofdefective merchandise. Wright has received no payments from eitherschool as of month end. What amount will be recognized as netaccounts receivable on the balance sheet as of November 30?

$1,500

$1,000

$1,600

$900

Question 7

Two individuals at a retail store work the same cash register. Youevaluate this situation as

a violation of establishment of responsibility.

supporting internal independent verification.

a violation of segregation of duties.

supporting the establishment of responsibility.

Question 8

Kershaw Bookstore had 500 units on hand at January 1, costing $18each. Purchases and sales during the month of January were asfollows:
Date Purchases Sales
Jan. 14 375 @ $28
17 250 @ $20
25 250 @ $22
29 250 @ $32

Kershaw does not maintain perpetual inventory records. According toa physical count, 375 units were on hand at January 31.

The cost of the inventory at January 31, under the LIFO methodis:

$8,000.

$6,750.

$7,750.

$1,000.



Question 9

A company has an average inventory on hand of $40,000 and the daysin inventory is 73 days. What is the cost of goods sold?

$2,920,000

$1,460,000

$200,000

$400,000
Question 10

An aging of a company's accounts receivable indicates that $9,000are estimated to be uncollectible. If Allowance for DoubtfulAccounts has a $1,100 credit balance, the adjustment to record baddebts for the period will require a

debit to Allowance for Doubtful Accounts for $7,900.

debit to Bad Debts Expense for $7,900.

debit to Bad Debts Expense for $9,000.

credit to Allowance for Doubtful Accounts for $9,000.
# 11 The accountant at Reber Company has determined that incomebefore income taxes amounted to $6,750 using the FIFO costingassumption. If the income tax rate is 30% and the amount of incometaxes paid would be $225 greater if the LIFO assumption were used,what would be the amount of income before taxes under the LIFOassumption?

$6,525

$6,975

$7,500

$6,090

Question 12

Tyler, Inc. had the following bank reconciliation at March 31.2010:
Balance per bank statement, 3/31/10 $37,200
Add: Deposit in transit 10,300
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31/10 $34,900

Data per bank for the month of April 2010 follow:
Deposits $46,700
Disbursements 49,700

All reconciling items at March 31, 2010 cleared the bank in April.Outstanding checks at April 30, 2010 totaled $6,000. There were nodeposits in transit at April 30, 2010. What is the cash balance perbooks at April 30, 2010?

$28,200

$31,900

$34,200

$38,500




Question 13

Which of the following is not an advantage of a subsidiaryledger?

Helps locate errors in individual accounts.

Puts greater detail in the general ledger.

Makes possible a division of labor.

Shows transactions affecting one customer or one creditor in asingle account.



Question 14

The use of special journals to record transactions

can save time in the posting process.

eliminates the need for a general ledger.

should only be used if the volume of transactions is small.

eliminates the need for a general journal.

Question 15

On March 1, 2010, Joe Miles purchased a suit at Calvin's FineApparel Store. The suit cost $250 and Joe used his Calvin creditcard. Calvin charges 2% per month interest if payment on creditcharges is not made within 30 days. On April 30, 2010, Joe had notyet made his payment. What entry should Calvin make on April30th?

Bad Debts Expense 245
Interest Expense 5
Accounts Receivable 250


Accounts Receivable 5
Interest Revenue 5


Accounts Receivable 255
Interest Revenue 5
Sales 250


Uncollectible Account 250
Accounts Receivable 250






Question 16

A company just starting business made the following four inventorypurchases in June:
June 1 150 units $390
June 10 200 units 585
June 15 200 units 630
June 28 150 units 495
$2,100

A physical count of merchandise inventory on June 30 reveals thatthere are 200 units on hand. Using the average-cost method, theamount allocated to the ending inventory on June 30 is

$1,500.

$575.

$600.

$2,100.



Question 17

A sales journal is used to record

only cash sales of merchandise.

credit sales of merchandise, sales returns and allowances, andsales discounts.

sales of all assets on credit and for cash.

only credit sales of merchandise.

Question 18

Assume the following sales data for a company:
2011 $945,000
2010 845,000
2009 650,000

If 2009 is the base year, what is the percentage increase in salesfrom 2009 to 2010?

130%

23%

30%

77%




Question 19

Rodgers Company lends Lanier Company $30,000 on April 1, acceptinga four-month, 9% interest note. Rodgers Company prepares financialstatements on April 30. What adjusting entry should be made beforethe financial statements can be prepared?

Notes Receivable 30,000
Cash 30,000


Interest Receivable 225
Interest Revenue 225


Cash 225
Interest Revenue 225


Interest Receivable 900
Interest Revenue 900




Question 20

Walker Clothing Store had a balance in the Accounts Receivableaccount of $390,000 at the beginning of the year and a balance of$410,000 at the end of the year. Net credit sales during the yearamounted to $2,000,000. The average collection period of thereceivables in terms of days was

30 days.

146 days.

73 days.

365 days.
Question 21

If a check correctly written and paid by the bank for $428 isincorrectly recorded on the company's books for $482, theappropriate treatment on the bank reconciliation would be to

deduct $54 from the bank's balance.

deduct $428 from the book's balance.

add $54 to the bank's balance.

add $54 to the book's balance

Question 22

The current assets of Kile Company are $150,000. The currentliabilities are $100,000. The current ratio expressed as aproportion is

$150,000 ÷ $100,000.

150%.

.67 : 1

1.5 : 1



Question 23

Accounts Receivable and Accounts Payable are examples of

subsidiary ledger accounts.

both nominal accounts and controlling accounts.

nominal accounts.

controlling accounts

Question 24

Hahn Company uses the percentage of sales method for recording baddebts expense. For the year, cash sales are $500,000 and creditsales are $2,000,000. Management estimates that 1% is the salespercentage to use. What adjusting entry will Hahn Company make torecord the bad debts expense?

Bad Debts Expense 20,000
Allowance for Doubtful Accounts 20,000


Bad Debts Expense 20,000
Accounts Receivable 20,000


Bad Debts Expense 25,000
Accounts Receivable 25,000


Bad Debts Expense 25,000
Allowance for Doubtful Accounts 25,000




Question 25

A successful grocery store would probably have

a high inventory turnover.

low volume.

zero profit margin.

a low inventory turnover.
Question 26

Richmond's Wholesale uses a sales journal. An entry in this journalrepresents a

debit to Cash; credit to Sales.

debit to Accounts Payable; credit to Sales Returns andAllowances.

debit to Accounts Receivable; credit to Sales.

debit to Sales Discounts; credit to Cash.



Question 27

In the month of November, Coler Company Inc. wrote checks in theamount of $9,250. In December, checks in the amount of $12,658 werewritten. In November, $8,468 of these checks were presented to thebank for payment, and $10,883 were presented in December. What isthe amount of outstanding checks at the end of November?

$1,775

$782

$3,550

$2,557
Question 28

On February 1, Platt Company received a $9,000, 10%, four-monthnote receivable. The cash to be received by Platt Company when thenote becomes due is

$9,000.

$9,300.

$9,900.

$300.
Question 29

Gold Clothing Store had a balance in the Accounts Receivableaccount of $820,000 at the beginning of the year and a balance of$880,000 at the end of the year. Net credit sales during the yearamounted to $7,650,000. The receivables turnover ratio was

4.5 times.

8.7 times.

9.3 times.

9.0 times.
Question 30

Widner Company understated its inventory by $10,000 at December 31,2010. It did not correct the error in 2010 or 2011. As a result,Widner's owner's equity was:

overstated at December 31, 2010, and overstated at December 31,2011.

understated at December 31, 2010, and overstated at December 31,2011.

understated at December 31, 2010, and properly stated at December31, 2011.

understated at December 31, 2010, and understated at December 31,2011.