question

Goodwill is the amount by which a company's value exceeds the value of its individual assets and liabilities.

answer

T

question

Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced.

answer

F

question

Treating capital expenditures of a small dollar amount as revenue expenditures is likely to mislead the users of financial statements.

answer

F

question

When a company constructs a building, the cost of the building includes materials and labor, design fees, building permits and insurance during construction.

answer

T

question

Natural resources are reported on the balance sheet at cost plus accumulated depletion.

answer

F

question

Natural resources are often called wasting assets because they are physically consumed when used.

answer

T

question

It is not necessary to report both the cost and the accumulated depreciation of plant assets on the financial statements of the company.

answer

F

question

Ordinary repairs are expenditures that keep assets in normal, good operating condition.

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T

question

Extraordinary repairs are expenditures extending the asset's useful life beyond its original estimate and are capital expenditures because they benefit future periods.

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T

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The purchase of a property that included land, building and improvements is called a lump-sum purchase.

answer

T

question

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

answer

T

question

The historical cost principle requires that an asset be recorded at the cash or cash equivalent amount that was given in exchange for it

answer

T

question

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the past, current and future financial statements.

answer

F

question

The going concern principle supports the reporting of plant assets at book value rather than market value.

answer

T

question

Since goodwill is intangible, it is amortized each year using the straight-line method, the same as other intangibles are amortized.

answer

F

question

Revenue expenditures are additional costs of plant assets that materially increase the assets' life or productive capabilities.

answer

F

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Plant assets refer to intangible assets that are used in the everyday operations of a business.

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F

question

An assets' cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

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T

question

An understatement of the ending inventory balance will understate cost of goods sold and overstate net income.

answer

F

question

The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.

answer

T

question

The lower of cost or market rule for inventory valuation must be applied to each individual unit separately and not to major categories of inventory or to the entire inventory.

answer

F

question

If the seller is responsible for paying freight charges, then ownership of inventory passes when goods arrive at their destination.

answer

T

question

There is no simple rule for inventory turnover, except that a high ratio is preferable provided inventory is adequate to meet demand.

answer

T

question

Errors in the period-end inventory balances only have an impact on the current period's records and financial statements.

answer

F

question

A company can change its inventory costing method without mentioning this change in its financial statements since it is a decision made by internal management.

answer

F

question

When taking a physical count of inventory, the use of pre-numbered inventory tickets assists in the control process.

answer

T

question

If damaged and obsolete goods cannot be sold they are not included in inventory

answer

T

question

One of the most important decisions in accounting for inventory is determining the unit costs assigned to each inventory item.

answer

T

question

The consistency principle requires a company to use the same accounting methods period after period, so that financial statements are comparable across periods.

answer

T

question

The assignment of costs to the cost of goods sold and to inventory under the FIFO is the same for both the perpetual and periodic inventory systems.

answer

T

question

LIFO is the preferred inventory costing method when costs are rising and managers have incentives to report higher income. The reasons for doing this is for a bonus plan, job security and reputation.

answer

F

question

Goods in transit are automatically included in a company's inventory account.

answer

F

question

A company's cost of inventory was $317,500. Due to phenomenal demand for this product, the market value of its inventory increased to $323,000. According to the consistency principle, this company should write up the value of its inventory.

answer

F

question

LIFO assumes that inventory costs flow in the order they were incurred.

answer

F

question

The principles of internal control include: establish responsibilities, maintain adequate records, insure assets, separate recordkeeping from custody of assets and perform regular and independent reviews.

answer

T

question

The days' sales uncollected ratio measures a company's ability to manage its debt.

answer

F

question

A purchase requisition is a document the purchasing department sends to the vendor to place an order.

answer

F

question

A good voucher system includes a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

answer

T

question

Basic bank services such as bank accounts, bank deposits and checking contribute to the control and safeguarding of cash.

answer

T

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Cash equivalents are short-term highly liquid investment assets that are easily converted to cash and have maturities of one year.

answer

F

question

Collusion is when a person embezzles money from a company and tries to hide the evidence.

answer

F

question

The steps to reconcile the balance of the bank statement to the adjusted balance include adding outstanding checks, deposits and bank service charges.

answer

F

question

The Petty Cash account is a separate checking account used for small amounts.

answer

F

question

A voucher is an internal document or file used to accumulate information to control cash disbursements and to ensure that a transaction is properly recorded.

answer

T

question

The days' sales uncollected ratio reflects on the liquidity of accounts receivable.

answer

T

question

An NSF check for $17. 50 would be recorded as a debit to Cash and a credit to Accounts Receivable.

answer

F

question

Good internal control dictates that a person who controls an asset should also maintain the accounting records for that asset.

answer

F

question

Receiving and paying for merchandise should be performed by one individual or department to streamline a voucher system and simplify the procedures for purchasing

answer

F

question

Cash includes currency, coins and the deposits in most checking accounts.

answer

T

question

If the Cash Over and Short account has a debit balance at the end of the period, the amount is reported as miscellaneous revenue.

answer

F

question

When merchandise is needed, a department manager must inform the purchasing department of this need by preparing and signing a purchase requisition, which lists the merchandise needed and requests that it be purchased.

answer

T

question

Internal control devices for banking activities include signature cards, deposit tickets, checks and bank statements.

answer

T

question

The internal controls of cash receipts aims to ensure that all cash received is properly recorded and deposited.

answer

T

question

Technologically advanced accounting systems do not need monitoring for errors because computers always process transactions correctly.

answer

F

question

A check involves 3 parties: the maker who signs the check, the payee who is the recipient and the bank on which the check is drawn.

answer

T

question

Internal control policies and procedures are the same for all companies.

answer

F

question

Cash receipts by mail require only two people: One to open the mail and a second person to deposit the cash in the bank and record the cash receipt in the accounting records.

answer

T

question

Controls of cash disbursements are important for companies as most large thefts occur from payment of fictitious invoices.

answer

T

question

Liquidity refers to a company's ability to pay its short-term obligations.

answer

T

question

In order to streamline the purchasing process, department managers should place orders directly with suppliers.

answer

F

question

Once a good system of internal control is in place, it rarely needs review.

answer

F

question

A voucher system's control over cash disbursements begins when a company incurs an obligation that will result in eventual payment of cash.

answer

T

question

When evaluating the days' sales uncollected ratio, generally the less time that money is tied up in receivables often translates into increased profitability.

answer

T

question

The advantage of the allowance method of accounting for uncollectible accounts is that it identifies the specific customers who do not pay their bills.

answer

F

question

With regard to accounts receivable, both GAAP and IFRS require the allowance method for uncollectibles (unless uncollectibles are immaterial).

answer

T

question

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when the company determines it to be uncollectible.

answer

T

question

TechCom's customer, RDA, paid off an $8,300 balance on its account receivable. TechCom should record the transaction as a debit to Accounts Receivable-RDA and a credit to Cash

answer

F

question

After adjustment, the allowance for doubtful accounts has the effect of reducing accounts receivable to its estimated realizable value.

answer

T

question

When using the allowance method of accounting for uncollectible accounts, the entry to record the bad debts expense is a debit to Bad Debts Expense and a credit to Accounts Receivable.

answer

F

question

Under the allowance method of accounting for uncollectible accounts receivable, no estimate is made to predict bad debts expense.

answer

F

question

A company received a $1,000, 90-day, 10% note receivable. The journal entry to record receipt of the note would include a debit to Notes Receivable.

answer

T

question

When a company has a high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

answer

F

question

Companies use two methods to account for uncollectible accounts: the direct write-off method and the allowance method.

answer

T

question

Notes receivable are classified as current liabilities.

answer

F

question

The percent of sales method for estimating bad debts assumes that a given percent of a company's credit sales for the period are uncollectible.

answer

T

question

When using the allowance method of accounting for uncollectible accounts, the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.

answer

F

question

A company factored $35,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this transaction would include a debit to Cash of $35,000, a debit to Factoring Fee Expense of $700 and credit to Accounts Receivable of $35,700.

answer

F

question

Accounts receivables occur from credit sales to customers.

answer

T

question

If the seller regularly offers customers such terms, installment accounts receivable are classified as current assets, even though the installment period is more than one year.

answer

T

question

It is never good practice to accept a note receivable in exchange for an overdue account receivable.

answer

F

question

The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not matured in the Notes Receivable account.

answer

T

question

A maker who dishonors a note is one who does not pay it upon maturity.

answer

T

question

The person that borrows money and signs a promissory note is referred to as the payee.

answer

F

question

Companies can report a credit card expense as a discount deducted from sales or as a selling expense.

answer

T

question

When a company holds a large number of notes receivable it sometimes sets up a controlling account and a subsidiary ledger for notes.

answer

T

question

The process of using accounts receivable as security for a loan is known as factoring accounts receivable.

answer

F

question

The maturity date of a note refers to the date the note is signed.

answer

F

question

Plant assets are used in everyday operations of the business and have useful lives that extend over more than one accounting period.

answer

T

question

A bank reconciliation usually yields both an adjusted bank balance and an adjusted book balance.

answer

T

question

Proper internal control means that the responsibility for a task is clearly established and assigned to one person.

answer

T

question

The percent of accounts receivable method for bad debts estimation uses only income statement account balances to estimate bad debts.

answer

F

question

An effective voucher system has limited ability in preventing a dishonest employee from colluding with a dishonest supplier to fraudulently acquire cash payments for goods and services not received.

answer

F

question

An invoice is an itemized statement of goods prepared by the vendor listing the customer's name, items sold, sales prices and terms of sale.

answer

T

question

Depreciation is the process of allocating the cost of a plant asset to an expense account in the accounting periods benefiting from its use.

answer

T

question

The total depreciation expense over an asset's useful life will be identical across all methods of depreciation.

answer

T

question

A copyright gives its owner the exclusive right to publish and sell a musical, literary or artistic work during the life of the creator plus 17 years.

answer

F

question

The purposes and principles of internal control are fundamentally the same across the globe. However, cultural differences sometimes suggest different emphasis on the mix of control procedures.

answer

T

question

On a bank statement, deposits are listed as debits because the bank increases its cash account when the deposit is made.

answer

F

question

An internal control system refers to the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations and urge adherence to company policies.

answer

T

question

Checking accounts are also called demand deposits.

answer

T

question

An inventory error is sometimes said to be self-correcting because it causes an offsetting error in the next period.

answer

T

question

LIFO inventory value is often less than the inventory's replacement cost because LIFO inventory is valued using the oldest purchase cost.

answer

T

question

Cancelled checks are checks the bank has paid and deducted from the customer's account during the period.

answer

T

question

When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.

answer

F

question

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

answer

T

question

To avoid the time-consuming process of taking an inventory each year, the majority of companies use the gross profit method to estimate ending inventory.

answer

F

question

The materiality principle permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in comparison to the company's other financial statement items such as sales and net income.

answer

F

question

1. The percent of sales method for estimating bad debts assumes that a given percent of a company's credit sales for the period are noncollectable.

answer

T

question

An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.

answer

T

question

Bonding does not discourage employees from stealing from the company as employees know that bonding is an insurance policy against loss from theft.

answer

F

question

After preparing a bank reconciliation, adjustments must be made for items reconciling the bank balance and items reconciling the book balance.

answer

F

question

The full disclosure principle requires that the notes to the financial statements report a change in accounting method for inventory costing.

answer

T

question

Assume that at the end of the day, the cash register tape shows a balance of $635. However, the cash drawer has a balance of $650, this difference should be debited to Miscellaneous Expense.

answer

F

question

Outstanding checks are checks the bank has paid and deducted from the customer's account during the month.

answer

F

question

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

answer

F

question

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

answer

F

question

A company has $80,000 in outstanding in accounts receivables and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $600. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,000.

answer

F

question

Most companies use accelerated depreciation for tax purposes as it reduces taxable income due to higher depreciation expense in the early years of an asset's life.

answer

T

question

Managers are able to make important decisions correctly using erroneous inventory balances because inventory errors are self-correcting and so are less serious.

answer

F

question

The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in years.

answer

T

question

Assume that a buyer receives a shipment of MODEL SD010 with an invoice amount of $780, although $870 worth of goods were received. The purchase order was for $870. Since the difference was in the buyer's favor, the buyer's purchasing department should authorize payment of $780.

answer

F

question

A properly designed internal control system is a key part of accounting information systems design, analysis and performance.

answer

T

question

In the retail inventory method of inventory valuation, the retail amount of inventory refers to the dollar amount measured by looking at the selling prices of inventory items.

answer

T

question

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

answer

T

question

A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.

answer

T

question

If an asset is sold above its book value, the selling company records a loss.

answer

F

question

If a customer owes interest on accounts receivable, the Interest Revenue account is debited and Accounts Receivable is credited.

answer

F

question

The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying this quotient by 365.

answer

T

question

The dollar value assigned to goods purchased will differ under the different inventory valuation methods of specific identification, FIFO, LIFO and weighted average.

answer

F

question

Internal control systems used to monitor and control operations are a low priority for managers within the company.

answer

F

question

The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection.

answer

T

question

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used

answer

T

question

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

answer

T

question

For good internal controls over cash, all payments should be made from the petty cash, except for very large payments.

answer

F

question

Depreciation measures the actual decline in market value of an asset.

answer

F

question

Technology such as cash registers, check protectors, time clocks and personal identification scanners can increase the strength of internal controls.

answer

T

question

Separation of duties divides responsibility for a transaction or a series of transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud.

answer

T

question

Under LIFO, the most recent costs are assigned to ending inventory.

answer

F

question

The matching principle requires use of the direct write-off method of accounting for bad debts.

answer

F

question

The most frequently used method of depreciation is the straight-line method.

answer

T

question

The accounts receivable turnover is calculated by dividing net sales by average accounts receivable.

answer

T

question

Installment accounts receivable is another name for aging of accounts receivable.

answer

F

question

Gain or loss on the disposal of an asset is determined by comparing "value given" (book value) to "value received".

answer

T

question

Incidental costs most commonly added to the costs of inventory include import duties, freight, storage and insurance.

answer

T

question

The percent of sales method of estimating bad debts is focused more on realizable value of accounts receivable than matching.

answer

F

question

The accounts receivable turnover ratio indicates how often account receivables are received and collected during the period.

answer

T

question

An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.

answer

F

question

The voucher register is a journal that is used to record all approved vouchers within the company.

answer

T

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