ACCT Exam 3

Which of the following is not a limitation of internal control? A) Cost of establishing control procedures should not exceed their benefit. B) The human element. C) Collusion. D) The size of the company

Internal controls are not designed to safeguard assets from A) natural disasters. B) employee theft. C) robbery. D) unauthorized use

The custodian of a company asset should A) have access to the accounting records for that asset. B) be someone outside the company. C) not have access to the accounting records for that asset. D) be an accountant.

Related selling activities do not include A) ordering the merchandise. B) making a sale. C) shipping the goods. D) billing the customer

Physical controls to safeguard assets do not include A) cashier department supervisors. B) vaults. C) safety deposit boxes. D) locked warehouses.

Which of the following is not an internal control activity for cash? A) The number of persons who have access to cash should be limited. B) The functions of record keeping and maintaining custody of cash should be combined. C) Surprise audits of cash on hand should be made occasionally. D) All cash receipts should be recorded promptly.

Which of the following is not a suggested procedure to establish internal control over cash disbursements? A) Anyone can sign the checks. B) Different individuals approve and make the payments. C) Blank checks are stored with limited access. D) The bank statement is reconciled monthly.

Blank checks A) should be safeguarded. B) should be pre-signed. C) do not need to be safeguarded since they must be signed to be valid. D) should not be pre-numbered.

A deposit made by a company will appear on the bank statement as a A) debit. B) credit. C) debit memorandum. D) credit memorandum.

A check written by the company for $167 is incorrectly recorded by a company as $176. On the bank reconciliation, the $9 error should be A) added to the balance per books. B) deducted from the balance per books. C) added to the balance per bank. D) deducted from the balance per bank.

Which of the following bank reconciliation items would not result in an adjusting entry? A) Service charge. B) Deposits in transit. C) NSF check of customer. D) Collection of a note by the bank

Clark Company developed the following reconciling information in preparing its September bank reconciliation: Cash balance per bank, 9/30 = $30,800 Note receivable collected by bank = 16,800 Outstanding checks = 25,200 Deposits in transit = 12,600 Bank service charge = 210 NSF check = 3,360 Using the above information, determine the cash balance per books (before adjustments) for the Clark Company. A) $27,370. B) $43,400. C) $4,970. D) $42,000

Dobler Company gathered the following reconciling information in preparing its June bank reconciliation: Cash balance per books, 6/30 = $8,400 Deposits in transit = 600 Notes receivable and interest collected by bank =1,480 Bank charge for check printing = 50 Outstanding checks = 3,000 NSF check = 280 The adjusted cash balance per books on June 30 is A) $10,150. B) $9,880. C) $9,550. D) $10,110.

Russel Company assembled the following information in completing its March bank reconciliation: Balance per bank $11,460 Outstanding checks $2,325 Deposits in transit $3,750 NSF check $240 Bank service charge $75 Cash balance per books $13,200 As a result of this reconciliation, Russel will A) reduce its cash account by $1,425. B) reduce its cash account by $75. C) increase its cash account by $165. D) reduce its cash account by $315

If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company's books for $419, the appropriate treatment on the bank reconciliation would be to A) add $72 to the book's balance. B) subtract $72 from the book's balance. C) deduct $72 from the bank's balance. D) deduct $491 from the book's balance.

Which of the following would not be reported on the balance sheet as a cash equivalent? A) Money market fund. B) Commercial paper. C) Treasury bill. D) Restricted cash

The following information was taken from Hobson Company cash budget for the month of June Beginning cash balance $150,000 Cash receipts 145,000 Cash disbursements 170,000 If the company has a policy of maintaining end-of-the-month cash balance of $125,000, the amount the company would have to borrow is A) $50,000. B) $25,000. C) $0. D) $75,000

A company's past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were: July $240,000 August 144,000 September 360,000 The cash inflow in the month of September is expected to be A) $271,200. B) $205,200. C) $216,000. D) $259,200

A $100 petty cash fund has cash of $16 and receipts of $86. The journal entry to replenish the account would include a A) debit to Cash for $84. B) credit to Petty Cash for $84. C) credit to Cash Over and Short for $2. D) credit to Cash for $86.

A $200 petty cash fund has cash of $32 and receipts of $171. The journal entry to replenish the account would include A) debit to Cash for $171. B) credit to Petty Cash for $171. C) credit to Cash over and Short for $3. D) credit to Cash for $171.

Under the allowance method, writing off an uncollectible account A) affects only balance sheet accounts. B) affects both balance sheet and income statement accounts. C) affects only income statement accounts. D) is not acceptable practice.

The direct write-off method of accounting for uncollectible accounts A) emphasizes the matching of expenses with revenues. B) emphasizes balance sheet relationships. C) emphasizes cash realizable value. D) is not generally accepted as a basis for estimating bad debts

An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a A) debit to Bad Debt Expense for $4,500. B) debit to Bad Debt Expense for $6,100. C) debit to Bad Debt Expense for $2,900. D) credit to Allowance for Doubtful Accounts for $4,500.

An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 credit balance, the adjustment to record bad debts for the period will require a A) debit to Bad Debt Expense for $4,500. B) debit to Allowance for Doubtful Accounts for $2,900. C) debit to Bad Debt Expense for $2,900. D) credit to Allowance for Doubtful Accounts for $4,500

Allowance for Doubtful Accounts on the balance sheet A) is offset against total current assets. B) increases the cash realizable value of accounts receivable. C) appears under the heading "Other Assets." D) is deducted from accounts receivable.

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $30,000. If the balance of the Allowance for Doubtful Accounts is $4,000 debit before adjustment what is the balance after adjustment? A) $30,000 B) $34,000 C) $26,000 D) $4,000

One might infer from a debit balance in Allowance for Doubtful Accounts that A) a posting error has been made. B) more accounts have been written off than had been estimated. C) the direct method is being used. D) Bad Debt Expense has been overestimated

Using the allowance method, the uncollectible accounts for the year is estimated to be $40,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the amount of bad debt expense for the period? A) $9,000 B) $31,000 C) $40,000 D) $49,000

The following information is related to December 31, 2013 balances. • Accounts receivable $700,000 • Allowance for doubtful accounts (credit) (60,000) • Cash realizable value 640,000 During 2014 sales on account were $195,000 and collections on account were $115,000. Also, during 2014 the company wrote off $11,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $72,000. The change in the cash realizable value from the balance at 12/31/13 to 12/31/14 was A) $68,000 increase. B) $80,000 increase. C) $57,000 increase. D) $69,000 increase

The direct write-off method is acceptable for financial reporting purposes only if the bad debt losses are insignificant. A) This is a false statement because the direct write-off method violates the matching principle. B) This is a true statement based on the concept of materiality. C) This is a false statement because the direct write-off method can only be used for tax reporting. D) This is a true statement because companies can choose either the direct write-off or the allowance method for financial reporting, as long as they consistently apply the method

Under the allowance method of accounting for bad debts, why must uncollectible accounts receivable be estimated at the end of the accounting period? A) To allow the collection department to schedule work for the next accounting period. B) To determine the gross realizable value of accounts receivable. C) The IRS rules require the company to make the estimate. D) To match bad debt expense to the period in which the revenues were earned.

Which of the following is not true regarding a promissory note? A) Promissory notes may not be transferred to another party by endorsement. B) Promissory notes may be sold to another party. C) Promissory notes give a stronger legal claim to the holder than accounts receivable. D) Promissory notes may be bearer notes and not specifically identify the payee by name.

The interest on a $9,000, 10%, 1-year note receivable is A) $9,000. B) $75. C) $900. D) $9,900.

The interest on a $7,000, 6%, 60-day note receivable is A) $35. B) $420 C) $210. D) $70

Rosen Company receives a $5,000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note? A) Notes Receivable 5,075 Accounts Receivable—Bay Company 5,075 B) Notes Receivable 5,075 Accounts Receivable—Bay Company 5,000 Interest Revenue 75 C) Notes Receivable 5,000 Interest Receivable 75 Accounts Receivable—Bay Company 5,000 Interest Revenue 75 D) Notes Receivable 5,000 Accounts Receivable—Bay Company 5,000

When a note is dishonored, the payee's entry includes a A) debit to Interest Revenue. B) credit to Accounts Receivable. C) debit to Interest Expense. D) credit to Notes Receivable

The financial statements of the Belfry Manufacturing Company reports net sales of $500,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days? A) 29.2 times B) 86.9 times C) 44.0 times D) 57.9 times

In the table below the information for four companies is provided. http://puu.sh/8zz3n.png Assuming all four companies are in the same industry, which company appears to have the greatest likelihood of paying its current obligations? A) Martin B) Lewis C) Danforth D) Garner

ABC Company accepted a national credit card for a $7,000 purchase. The cost of the goods sold is $5,600. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income? A) Increase by $1,358. B) Increase by $1,400. C) Increase by $1,190. D) Increase by $6,790.

A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables? A) The loss section of the income statement will increase each time receivables are sold. B) The credit to Accounts Receivable is less than the debit to Cash when the accounts are sold. C) Selling expenses will increase each time accounts are sold. D) The other expenses section of the income statement will increase each time accounts are sold.

Which of the following is not properly classified as property, plant, and equipment? A) Building used as a factory. B) Land used in ordinary business operations. C) A truck held for resale by an automobile dealership. D) Land improvement, such as parking lots and fences

Givens Retail purchased land for a new parking lot for $75,000. The paving cost $105,000 and the lights to illuminate the new parking area cost $36,000. Which of the following statements is true with respect to these additions? A) $180,000 should be debited to the Land account. B) $141,000 should be debited to Land Improvements. C) $216,000 should be debited to the Land account. D) $216,000 should be debited to Land Improvements.

Schrock Company purchases a new delivery van for $60,000. The sales taxes are $4,500. The logo of the company is painted on the side of the van for $1,200. The van's annual license is $120. The van undergoes safety testing for $220. What does Schrock record as the cost of the new van? A) $66,040. B) $65,920. C) $64,500. D) $63,920.

The balance in the Accumulated Depreciation account represents the A) cash fund to be used to replace plant assets. B) amount to be deducted from the cost of the plant asset to arrive at its fair market value. C) amount charged to expense in the current period. D) amount charged to expense since the acquisition of the plant asset

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n) A) equal and equitable manner. B) accelerated and accurate manner. C) systematic and rational manner. D) conservative market-based manner

In computing depreciation, salvage value is A) the fair value of a plant asset on the date of acquisition. B) subtracted from accumulated depreciation to determine the plant asset's depreciable cost. C) an estimate of a plant asset's value at the end of its useful life. D) ignored in all the depreciation methods.

Mitchell Corporation bought equipment on January 1, 2014 .The equipment cost $180,000 and had an expected salvage value of $30,000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is A) $180,000. B) $150,000. C) $30,000. D) $25,000.

Newell Company purchased a machine with a list price of $96,000. They were given a 10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500. Newell estimates that the machine will have a useful life of 10 years and a residual value of $30,000. If Newell uses straight-line depreciation, annual depreciation will be A) $6,150. B) $6,108. C) $9,150. D) $5,640

Expenditures that add to the utility of plant assets for more than one accounting period are A) committed expenditures. B) revenue expenditures. C) current expenditures. D) capital expenditures

Compton Inc. made a $500 ordinary repair to a piece of equipment. Compton's accountant debited this amount to the asset account, Equipment and credited Cash. Was this the correct entry and if not, why not? A) Yes, this was the correct entry. B) No, the correct entry would be a debit to Maintenance and Repairs Expense and a credit to Cash. C) No, the correct entry would be a debit to Cash and a credit to Maintenance and Repairs Expense. D) No, the correct entry would be a debit to Service Revenue and a credit to Cash

Equipment that cost $54,000 and on which $30,000 of accumulated depreciation has been recorded was disposed of for $27,000 cash. The entry to record this event would include a A) gain of $3,000. B) loss of $3,000. C) credit to the Equipment account for $9,000. D) credit to Accumulated Depreciation for $30,000.

Equipment that cost $72,000 and on which $60,000 of accumulated depreciation has been recorded was disposed of for $18,000 cash. The entry to record this event would include a A) gain of $6,000. B) loss of $6,000. C) credit to the Equipment account for $18,000. D) credit to Accumulated Depreciation for $60,000

The following information is provided for Nguyen Company and Northwest Corporation http://puu.sh/8zzwZ.png What is Nguyen's asset turnover ratio for 2014? A) 4.00 times B) 1.36 times C) 0.25 times D) 0.73 times

Which of the following is not an intangible asset arising from a government grant? A) Goodwill. B) Patent. C) Trademark. D) Trade name.

A patent A) has a legal life of 20 years. B) is not amortized. C) can be renewed indefinitely. D) is rarely subject to litigation because it is an exclusive right.

Copyrights are granted by the federal government A) for the life of the creator or 70 years, whichever is longer. B) for the life of the creator plus 70 years. C) for the life of the creator or 70 years, whichever is shorter. D) and therefore cannot be amortized.

A computer company has $3,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $3,600,000. What is the amount of net income or loss before taxes after these research and development costs are accounted for? A) $600,000 loss. B) $3,000,000 net income. C) $600,000 net income. D) Cannot be determined from the information provided

Which of the following statements concerning financial statement presentation is false? A) Intangibles are reported separately under Intangible Assets. B) The balances of major classes of assets may be disclosed in the footnotes. C) The balances of the accumulated depreciation of major classes of assets may be disclosed in the footnotes. D) The balances of all individual assets, as they appear in the subsidiary plant ledger, should be disclosed in the footnotes

Vickers Company uses the units-of-activity method in computing depreciation. A new plant asset is purchased for $36,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $3,000. What is the depreciation cost per unit? A) $3.30. B) $3.60. C) $0.33. D) $0.36

The calculation of depreciation using the declining-balance method A) ignores salvage value in determining the amount to which a constant rate is applied. B) multiplies a constant percentage times the previous year's depreciation expense. C) yields an increasing depreciation expense each period. D) multiplies a declining percentage times a constant book value.