question

What does the time period assumption state?

answer

The economic life of a business can be divided into artificial time periods.

question

Which of the following are common time periods that businesses use as their accounting period? Select all that apply.

answer

monthly, quarterly, annually

question

An accounting period that is one year long?

answer

Fiscal year

question

What type of accounting is in accordance with generally accepted accounting principle?

answer

Accrual

question

According to the revenue recognition principle, when should revenue be recognized in the accounting period?

answer

in the time period in which the performance obligation is satisfied

question

Which of the following statements about accrual-basis accounting is NOT true?

answer

Accrual-basis accounting recognizes expenses when they are paid

question

If a company spends $12 million dollars for a warehouse, when should the cost be written off?

answer

over the useful life of the warehouse

question

Why must companies make adjusting entries?

answer

because some costs expire with the passage of time and have not yet been journalized.

question

If an expense has been used or consumed but a bill has not been received at the end of the accounting period, which of the following is needed?

answer

an adjusting entry should be made recognizing the expense

question

Which of the following is true about unearned revenues?

answer

They are received and recorded as liabilities before they are earned.

question

Which of the following exemplify an asset-expense relationship?

answer

prepaid expense adjusting entries

question

If an adjustment is needed for unearned revenues, the liability is ______ overstated and the related revenue is understated before adjustment.

answer

overstated

question

Which of the following explains the process of depreciation?

answer

allocating the cost of an asset to expense over its useful life in a rational and systematic manner

question

From an accounting standpoint, the acquisition of a long-lived asset such as a building can be thought of as a long-term

answer

prepayment for the use of the asset

question

Suppose that a company did not make an adjusting entry to record revenue earned but not yet billed to customers. The result of this error would be to

answer

understate assets, net income, and stockholders' equity.

question

If an adjusting entry for depreciation is NOT made, _____ will be understated.

answer

expenses

question

The adjusted trial balance is the primary basis of the financial statements.

answer

TRUE

question

All balance sheet accounts are considered ____ accounts because their balances are carried over into future accounting periods.

answer

permanent

question

Closing entries and a post-closing trial balance are steps in the accounting cycle that occur

answer

annually

question

The ____ of an asset is the difference between the cost of a depreciable asset and its related accumulated depreciation.

answer

book value

question

The following are all types of merchandising except?

answer

service firm

question

A department store uses a perpetual inventory system. At year-end, the balance in the merchandise inventory account is $2 million. Assuming that the inventory records have been maintained properly, a year-end physical inventory

answer

will probably indicate less than $2 million in merchandise on hand.

question

In a ____ inventory system, the cost of goods is determined only at the end of the accounting period.

answer

periodic

question

How do you calculate the cost of goods for sale if closing inventory is nil?

answer

by adding beginning inventory to purchases and freight-in

question

A company receives a discount for paying for merchandise purchased within the discount period. How will the amount of the discount be recorded in a perpetual inventory system?

answer

credited to inventory

question

What does the freight term \"FOB destination\" mean?

answer

the seller pays the freight costs

question

A retailer acquires merchandise for resale, how would this be documented?

answer

Debited to Inventory

question

If the credit terms on a sales invoice read \"2/10, n/30,\" what does this mean?

answer

The buyer should pay within the discount period and recognize a savings

question

In which of the following scenarios would a Sales and Returns and Allowances account NOT be debited?

answer

A customer utilizes a prompt payment incentive.

question

________ has a normal credit balance.

answer

Sales Revenue

question

Which of the following is NOT a contra revenue account?

answer

Sales Revenue

question

In a perpetual inventory system, when is the Cost of Goods Sold account used?

answer

whenever there is a sale of merchandise or a return of merchandise sold

question

________ is shown on a multiple-step but not on a single-step income statement.

answer

Gross Profit

question

Why might a company choose to use the single-step income statement? Select all that apply

answer

The single-step income statement is easier to read. The company does not realize any type of profit or income until total revenues exceed total expenses.

question

At the beginning of January 2014, a company reported inventory of $4,000. During the month, the company made purchases of $17,800. On January 31, 2014, a physical count of inventory reported $4,200 on hand. Find the cost of goods sold for the month.

answer

$17,600

question

________ requires a physical count of goods on hand to compute the cost of goods sold.

answer

A periodic inventory system

question

During the year, a company's inventory decreased by $20,000. If the company's cost of goods sold for the year was $400,000, find the amount for purchases.

answer

$380,000

question

How is the gross profit rate computed?

answer

by dividing the amount of gross profit by net sales

question

How is the profit margin computed?

answer

by dividing net income by net sales

question

How is the quality of earnings ratio computed?

answer

by dividing net cash provided by operating activities by net income

question

Where is inventory reported?

answer

as a current asset on the balance sheet

question

are items that will eventually be used in production

answer

raw materials

question

How is inventory ready for sale classified in a manufacturing company?

answer

finished goods inventory

question

In the perpetual inventory system, which of the following is NOT a reason to take physical inventory?

answer

to determine ownership of goods

question

Which of the following is NOT considered an inventory cost?

answer

costs of the purchasing and warehousing departments

question

What is the beginning inventory plus the cost of goods purchased?

answer

cost of goods available for sale

question

A new company purchased three inventory items at the following costs: first purchase $60; second purchase $40; third purchase $50. If the company sells two units for $200, what would the gross profit for the period be, using FIFO costing?

answer

$100

question

What does the LIFO inventory method assume about the cost of the latest units purchased?

answer

They are the first to be allocated to cost of goods sold.

question

Which inventory flow assumption should a company choose if it is interested in the lowest amount of income tax expense in a period of increasing prices?

answer

LIFO

question

Based on the net income of the shop, the sales staff at Francesca's Fashions receive performance bonuses. In periods of declining prices, which inventory costing method would bring the sales staff the most benefit?

answer

LIFO

question

When determining the cost of inventory items before lower-of-cost-or-market is applied, which of the following costing methods cannot be used?

answer

All Choices - FIFO, LIFO, Specific Identification

question

How is market defined under the lower-of-cost-or-market basis in valuing inventory?

answer

current replacement costs

question

Simpson's Sandals, Inc. has five cases of flip-flops that just have not sold, remaining part of the inventory for more than two years. Each case cost $300 and originally retailed for $500. Each case has a current replacement cost of $200. What is the amount of loss that Simpson's should report for the year?

answer

$500

question

If beginning inventory is understated, which of the following will also be understated?

answer

cost of goods sold

question

An error was made with the physical count of goods on hand at the end of a period that resulted in a $25,000 overstatement of the ending inventory. What is the effect of this error on cost of goods sold and net income, respectively?

answer

Understated, Overstated

question

American Supply sold merchandise on account to Decker Plumbing on March 31st. The sales price was $2,300, and the cost of goods sold was $1,500. Sales revenue was reported immediately, but the cost of goods sold was not reported until April 3rd. What happened to the net income for March as a result?

answer

It was overstated by $1,500.

question

Managers at Birdie's Branch Removal, Inc. are confused because they maintain lower inventory amounts than the industry average, but they are a highly successful company, outselling even the big box companies in the chain saw market. Which of the following is the best answer to the managers' confusion?

answer

The company has a just-in-time inventory system.

question

To compute the inventory turnover ratio, cost of goods sold should be divided by which of the following?

answer

average inventory

question

On December 31st, 2012, Jameson reported the following numbers: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $700,000; and sales $1,200,000. What was Jameson's inventory turnover in 2012?

answer

7 times

question

Phantom or paper profits can result in periods of inflation when a company is using the

answer

FIFO costing assumption

question

Which of the following is an objective of a system of internal controls? Select all that apply.

answer

to safeguard company assets to reduce the risk of errors to enhance the accuracy and reliability of accounting records

question

Which of the following statements regarding auditors is true?

answer

They are hired by CPA firms to audit business firms

question

The custodian of a company asset ___ have access to the accounting records for that asset.

answer

should not

question

Which of the following is best at providing evidence which helps companies enforce the principle of establishing responsibility?

answer

requiring identifying passcodes in order to carry out activities

question

What does the term \"bonding\" mean when it refers to employees?

answer

They have been insured against misappropriation of assets.

question

Identify the example of poor internal control

answer

One person should be responsible for handling related transactions.

question

When a company uses pre-numbered checks and requires an approved invoice for each check, it is using which internal control?

answer

documentation procedures

question

When should a bank reconciliation be prepared?

answer

to explain any difference between the depositor's balance per books and the balance per bank

question

Which of the following does NOT affect the cash balance per books?

answer

outstanding checks

question

________ do NOT require journal entries by the depositor.

answer

Bank Errors

question

Which of the following would be reported on the balance sheet as a cash equivalent? Select all that apply.

answer

60-day certificate of deposit money market fund money market savings certificate

question

A company can try to ____ inventory as a way of ensuring it has adequate cash.

answer

reduce

question

A small company that has excess cash should invest it in a company's stock that is expected to increase in the short term

answer

FALSE

question

What does a check marked NSF mean?

answer

No Sufficient Funds

question

When would a bank issue a credit memorandum?

answer

for the collection of a note receivable for the depositor by the bank

question

Cash equivalents are highly liquid investments that are both

answer

readily convertible and very close to their maturity dates.

question

When a company allows only designated personnel to handle cash receipts, it is applying the internal control principle of

answer

establishment of responsibility

question

A voucher system is a series of prescribed control procedures that are designed to

answer

ensure that disbursements by check are proper.

question

All of the following are considered cash equivalents EXCEPT

answer

notes receivable

question

________ enhance the accuracy and reliability of the accounting records.

answer

Physical controls

ACCT 2000 – Exam 2

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