ACG 2021 Test#3 Master Quizlet – Flashcards

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Dishonest act by an employee that results in personal benefit to the employee at a cost to the employer
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Fraud
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-Opportunity -Financial Pressure -Rationalization
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Three factors that contribute to fraudulent activity
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-Publicly Traded corporations (NYSE) -Maintain a system of internal control -Corporate executives and boards of directors maintain controls -Independent outside auditors attest to internal control system -SOX created Public Company Accounting Oversight Board (PCAOB)
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Sarbanes-Oxley Act (SOX)
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-Safeguard assets -Enhance accuracy and reliability of accounting records -Increase efficiency of operations -Ensure compliance with laws and regulations
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Internal Control
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-Control is most effective when only one person is responsible for a given task -Requires limiting access only to authorized personnel and then identifying those personnel
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Establishment of responsibility
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-Different Individuals should be responsible for related activities -The responsibility for record-keeping for an asset should be separate from the physical custody of that asset -Reduces Opportunity
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Segregation of Duties
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-When one individual is responsible for all of the related activities the potential for errors and irregularities is increased -Related purchasing activities should be assigned to different individuals -Related selling activities also should be assigned to different individuals
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Segregation of Related Activities
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The custodian of the asset is not likely to convert the asset to personal use if one employee maintains the record of the asset and a different employee has physical custody of the assets
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Segregation of Record-Keeping from Physical Custody
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-Companies should use prenumbered documents and all documents should be accounted for -Employees should promptly forward source documents for accounting entries to the accounting department
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Documentation procedures
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-Records periodically verified by an independent -Discrepancies reported to management
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Independent internal verification
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-Bond (insuring employees who handle cash) -Rotate employees' duties and require vacations -Conduct background checks
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Human Resource Controls
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Establishment of Responsability
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Not informing Accounts Payable about fictitious claims she created with access to training software ; pocketing the cash
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Segregation of Duties
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Replacing vendor invoices with fake invoices while being allowed to make purchases of under $2,500 for his department w/out external approval
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Segregation of Duties
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Wrote checks for costs that had not incurred and whited out payee line and changed it to personal accounts (also reconciled bank accounts)
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Documentation procedures
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Submitted multiple claims for the same expenses and pocketed the extra cash
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Physical Controls-Should have locked mailroom during non business hours and tightly controlled the access during business hours
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Filled in a fradulent name on sales invoices so that a Sales Agent who had not made the sales would get the commission
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Independent Internal verification
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Someone who was responsible for signing off on all expense reports (even her own because her boss was "too busy") went on a shopping spree. She also controlled the budget so she coded her items to budget items so they would not catch anyone's attention
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Human Resource Controls
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The desk manager would not register guests in the hotel's computer system and worked with the housekeeper to clean their rooms because custodians would not know to clean the rooms because they weren't in the hotel system
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-Costs should not exceed benefit -Human element -Size of the business
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Limitations of internal control
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-Establishment of responsibility -Segregation of duties -Documentation procedures -Human Resource Controls -Independent Internal Verification -Physical Controls
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Cash receipt controls & Cash disbursement controls
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When a difference occurs between the actual cash and amount reported on the cash register tape
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Cash Over and Short
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Establishment of responsability
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Permitting only designated personnel to handle cash receipts is an application of the principle of
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Documentation procedures
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The use of prenumbered checks in disbursing cash is an application of the principle of
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A check written by the company for $540 was incorrectly recorded by the bank as $450
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For which of the following errors should $90 be subtracted from the cash balance per bank statement on a company's bank reconciliation?
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$7,030 Start: 7,000 Add note collected $300 Less Bank service charge $45 Less customer's NSF check $225
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Jones Company collected the following information to prepare its July bank reconciliation: Cash balance per books, July 31, $7,000. Deposits in transit, $600. Notes receivable with interest collected by bank, $300. Bank service charges, $45. Outstanding checks, $330. NSF check, $225. How much is the adjusted cash balance per books on July 31?
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The deposits in transit are added to the balance per the bank statement and outstanding checks are deducted from the bank statement during the bank reconciliation process
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Which one of the statements below is true?
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Deposits in transit
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Which of the following will not require an adjusting entry as a result of bank reconciliation?
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evaluate the system of internal controls for the companies that employ them
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Internal Auditors
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Safes and Vaults to store cash
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Which one of the following is a physical control?
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Physical controls
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Under which of the following do computer programs that limit unauthorized access to certain files fall?
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Interest earned
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For which item below might a bank issue a credit memorandum to a depositor's account?
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All publicly traded companies must maintain adequate internal controls
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Which of the following was a result of the Sarbanes-Oxley act?
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Debit to cash for $1,000
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A company's monthly bank statement shows a collection of a note receivable by the bank in the amount of $1,000. Which of the following is one part of the journal entry needed to record the note collection by the company?
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Establishment of responsibility
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Handy Inc. permits only designated personnel such as cashiers to handle cash receipts. What principle is being applied?
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Monitoring Others include: Control environment, Risk assessment, control activities, information and communication
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Which one of the following is a primary component of an internal control system?
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$3,400 Beginning outstanding checks $5,200 Add Checks issued during October $38,100 Less Checks that cleared the bank during October ($39,900) Ending Outstanding check $3,400 Ignore the NSF bc question is asking about outstanding checks
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Springer Company listed outstanding checks totaling $5,200 on its September bank reconciliation. In October, the company issued checks totaling $38,100. The October bank statement shows that checks totaling $39,900 cleared the bak. In addition, a check from one of Springer's customers in the amount of $800 was returned as NSF. The outstanding checks on the October bank reconciliation should total
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the costs of establishing controls should not exceed their expected benefit
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Reasonable assurance rests on the premise that
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To be able to use the cash basis of accounting
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Which one of the following is not a reason why an organization establishes a system for internal control?
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Pre-numbered checks are used to buy supplies
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Which one of the following is not a control procedure used for over-the-counter receipts
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$62,600 Start $67,300 Add: Deposits in transit $12,900 Less: Outstanding checks ($17,100) less: Bank error ($500) Adjusted cash balance per banks $62,600
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Double Company collected the following information to prepare its June bank reconciliation: Cash balance per bank, June 30, $67,300. Note receivable of $2,500 plus $250 of interest collected, $2,750. Outstanding checks $17,100. Deposits in transit $12,900. Double Company erroneously recorded a $560 outflow on its books as a $650 cash outflow. The bank erroneously added $500 to Double Company's checking account. The bank should have added the money to a different customer's account. Bank service charges $50, NSF check $500. How much is the adjusted cash balance per bank on June 30?
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$99 added to the cash balance per books
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A check correctly written by Speedy Delivery Company for $1,304 was incorrectly recorded on its books as $1,403. As a result the company's next monthly bank reconciliation should include
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Segregation of duties
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Which of the following is not an element of the fraud triangle
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$20,400 Start $21,000 Add: Deposits in transit $5,400 Less: Outstanding checks ($6,000)
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Barker Company-November Cash balance per bank November 30 $21,000 Note receivable of #8,500 plus $500 of interest collected $9,000 Outstanding checks $6,000 Deposits in transit $5,400 Bank service charges $85 NSF check $2,100 Adj. cash balance per bank
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Increase the cash account by $250 and decrease the Notes Receivable account by $250
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Which of the following is the adjusting entry that Max Company would journalize when Max Company's bank statement indicates that the bank collected a $250 non-interest bearing note receivable from one of Max's customers on Max Company's behalf?
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$92,550 Start: $89,300 Add: Notes receivable $2,100 Less: Bank service charge ($50) Less: NSF check ($600) Add: Book error $1,800 ($2,000-$200)
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Triple Company - September Cash balance per books $89,300 Notes receivable $2,100 Outstanding checks $5,100 Deposits in transit $3,800 Triple Company erroneously recorded a $200 cash outflow as a $2,00 cash outflow Bank erroneously added $1,000 to Triple Company's checking acct Bank service charges $50 NSF check $600
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D/R Miscallaneous Expense $50 C/R cash $50
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Which of the following is the correct adjusting journal entry for the bank account holder when notified of a bank debit memorandum for a monthly service charge of $50?
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Journaling, posting to the ledger, adjusting entries
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Accounting cycle
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Adjusting entries
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What is the key feature that distinguishes accrual based accounting from cash based accounting
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Written promise for amount to be received. Sometimes qualify as trade receivables; almost always change interest
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Notes receivable
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At the end of the company's fiscal year
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When is a physical inventory usually taken?
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FOB destination
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Ownership passes to the buyer when purchased goods are received by the buyer from a public carrier if the goods are shipped
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Raw materials
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Which of the following is an inventory account?
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Jerry
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Jerry gives goods on consignment to Cecil who agrees to try to sell them for a 25% commission. At the end of the accounting period the goods have not been sold. Which of the following parties includes in its inventory the consigned goods?
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$593,000 $723,000 - $125,000 - $5,000 = $593,000.
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At December 31, Sunrise Company's inventory records indicated a balance of $723,000. Upon further investigation it was determined that this amount included the following: (1) $5,000 of inventory held by Sunrise on consignment from another company. (2) $125,000 of inventory purchased by Sunrise under the terms FOB destination, and this inventory did not arrive until January 2. (3) $86,000 of inventory sold and shipped by Sunrise on December 29 under the terms FOB destination, and this inventory did not reach the buyer until January 3. What is Sunrise's correct ending inventory balance at December 31?
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$373,000 Do not include the following in inventory: --FOB destination purchases not yet received (i.e., $25,000) --FOB shipping point goods sold and shipped (i.e., $7,000) --Goods held on consignment (i.e., $15,000). Ending inventory = $420,000 - 25,000 - 7,000 - 15,000 = $373,000
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At December 31, Moore Company's inventory records indicated a balance of $420,000. Upon further investigation it was determined that this amount included the following: (1) $54,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB shipping point, but not due to be received until January 2. (2) $25,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB destination, but not due to be received until January 2. (3) $6,000 in goods sold by Moore with terms FOB destination on December 29. The goods are not expected to reach their destination until January 5. (4) $7,000 in goods sold by Moore with terms FOB shipping point on December 29. The goods are not expected to reach their destination until January 4. (5) $15,000 of goods received on consignment from Dollywood Company. What is Moore's correct ending inventory balance at December 31?
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$80,000 Beg. Inv. +Purchases-Ending Inv.= Cost of goods sold
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Cost of goods purchased is $480,000, beginning inventory is $40,000 and cost of goods sold is $440,000. How much is ending inventory?
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Jewelry store
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Which of the following would most likely employ the specific identification method of inventory costing?
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Allowance estimation
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Inventory is accounted for at cost. After a company has determined the quantity of units of inventory, it applies unit costs to the quantities to determine the total cost of inventory and the cost of goods sold. Which of the following statements is not a method for computing the cost of inventory?
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Higher net income than FIFO
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In periods of deflation what will LIFO produce?
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LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold
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With the assumption of costs and prices generally rising, which of the following is correct?
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Perpetual vs periodic inventory system
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Which one of the following is not a consideration that affects the selection of an inventory costing method?
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Conservatism
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What is the underlying rationale for the lower-of-cost-or-market rule?
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Increasing the amount of inventory on hand and decreasing sales
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Which of these transactions would cause the days in inventory ratio to increase the most?
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The difference between inventory reported using LIFO and inventory using LIFO
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What is the LIFO reserve?
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It will have the reverse effect on the net income during the next accounting period
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If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period?
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COGS is overstated Net Income is understated
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Fran Companys' ending inventory is understated by $4,000. What are the effects of this error on the current year's cost of goods sold and net income respectively?
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Amounts customers owe on account that result from the sale of goods and services. Almost always qualify as trade receivables. Almost never charge interest.
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Trade receivables
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Nontrade receivables including interest, loans to officers, advances to employees, interest (non-trade interest) and income taxes refundable
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Payable Receivable
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The party to whom payment must be paid
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Payee
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The party whom must pay the note
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Maker
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Interest Receivable
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Which of the following should be classified as an "other" recievable?
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At the point of sale of the merchandise on account
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When is a receivable recorded by a merchandiser?
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Allowance method for uncollectable accounts
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Which of these is a method for accounting for uncollectable accounts?
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Credit. The Allowance for Doubtful accounts is increased by credits and decreased by debits.
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Does the Allowance for doubtful accounts have a normal credit or debit balance?
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First accounts receivable (credit allowance for doubtful accounts) and second cash (credit accounts receivable).
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When an uncollectable account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be debited in these two journal entries?
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Bad Debits expense
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Which of the following accounts is a temporary account?
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Debit Allowance for doubtful accounts (because you are identifying a portion of the allowance that is being used) Credit Accounts Receivable
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If you identify an amount of money that will go uncollected from a customer you should...
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A debit to allowance for doubtful accounts for $800 and a credit to accounts receivable for $800
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If a company uses the allowance method for uncollectable accounts, the entry to record writing off a customer's $800 account includes
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net realizable value
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Accounts receivable are reported in the current assets section of the balance sheet at
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Determining the recipient
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Which one of the following is not one of the five basic issues in accounting for notes receivable?
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A promissory note is not a negotiable instrument
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Which one of these statements about promissory notes is incorrect?
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Face value plus interest
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What is the maturity value equal to?
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Accounts receivable
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Which of the following is the debit effect of the journal entry to record the dishonor of a note receivable?
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Accounts receivable, A 6-month note receivable, other receivables
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Which of the following is the correct sequence to report receivables on the balance sheet?
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A concentration of credit risk
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Which of the following is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of a company?
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1. FOB ship means buyer (Moore) owns once it's shipped, so keep that in inventory 2. FOB dest means buyer (Moore) won't own the merchandise until they get it on Jan 3, so subtract 23000 from inventory 3. FOB dest means buyer won't own the merchandise until they receive it, so keep 6000 in seller (Moore) inventory until Jan 6 4. FOB ship means the buyer owns it once it's shipped, so take 8000 out of the seller (Moore) inventory 5. Consignment goods (13000) should be taken out of inventory overall: 400,000 beg inv -23,000 -8000 -13,000 =356,000 end inv
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At December 31, Moore Company's inventory records indicated a balance of $400,000. Upon further investigation it was determined that this amount included the following: (1) $56,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB shipping point, but not due to be received until January 3. (2) $23,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB destination, but not due to be received until January 2. (3) $6,000 in goods sold by Moore with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6. (4) $8,000 in goods sold by Moore with terms FOB shipping point on December 27. The goods are not expected to reach their destination until January 4. (5) $13,000 of goods received on consignment from Dollywood Company. What is Moore's correct ending inventory balance at December 31?
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ITR= COGS/avg inven Find COGS: Sales rev 1.8m -COGS 1.2m =GP 600k Find avg inven: 160k+240k=400k/2= 200k 1,200,000/200,000 = an ITR of 6 times
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The following information came from the income statement of the Wilkens Company: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. What is Wilkens' inventory turnover ratio?
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Sales rev 100 @ $75 = 7500 -COGS 55 @ $44 + 45 @ $43 = 4355 = GP 3145 -op exp 1000 =net inc before taxes 2145 -tax rate 20% 429 =net inc 1716
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Howe Industries had the following inventory transactions occur during the current year: Units Cost/unit Feb. 1 Purchase 40 $42 Mar. 14 Purchase 60 $43 May 1 Purchase 55 $44 The company sold 100 units at $75 each and has a tax rate of 20%. Assuming that a periodic inventory system is used and operating expenses are $1,000, what is the company's after tax net income using LIFO? (rounded to whole dollars)
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Days in inven=365/inven turnover ratio ITR=COGS/ang inven ITR=285k/(190k/2) = 3 365/3= 121.67 days in inventory
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Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. What is Carlos' days in inventory?
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Perpetual: 12/12 sold 30 units 10 @ 6.25 20 @ 6 12/29 sold 20 units 20 @ 7.50 What's left: 10 @ 7.50 = 75 30 @ 6 = 180 EI = 255 Periodic: 50 units sold in december 30 @ 7.50 10 @ 6.25 10 @ 6 What's left: 40 @ 6 = 240 EI
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Big Time Widgets has the following inventory data: December 1 Beginning inventory of 50 units at $6.00 per unit December 7 Purchased 10 units at $6.25 per unit December 12 Sold 30 units December 20 Purchased 30 units at $7.50 per unit December 29 Sold 20 units Assuming that a perpetual inventory system is used, what is the ending inventory on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual?
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the difference between inventory reported using LIFO and inven reported using FIFO
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What is the LIFO reserve?
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-lower total assets than FIFO -lower retained earnings than FIFO -lower net income than FIFO
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In periods of rising prices, what will LIFO produce?
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The conservatism constraint -conservatism means to use the lowest value for assets and revenues when in doubt.
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What is the underlying rationale for the lower-of-cost-or-market rule?
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average CPU = total cost/total number of units total cost= 420,000 total units=40,000 420k/40k= 10.50 per unit 8000 x 10.50 = 84,000 end inv
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Freehan Company's accounting records has the following information about its inventory: Units Unit Cost Inventory, Jan. 1 6,000 $ 8 Purchase, April 2 18,000 10 Purchase, Aug. 28 16,000 12 If the company has 8,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system?
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Days in inven= 365/ITR ITR=COGS/avg inv 1260000/40000= 31.5 365/31.5= 11.58 days in inven
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Net sales are $2,400,000, cost of goods sold is $1,260,000, and average inventory is $40,000. How many days' sales are in inventory?
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it will have a reverse effect on next period's net income because the ending inven of last period is the beg inven of this period
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If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period?
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assets, net income, and stockholders eq overstated COGS understated
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If the ending inventory is overstated, what occurs?
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COGS overstated Net inc understated
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If the ending inventory is understated, what occurs?
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COGS overstated Net inc understated
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If the beg inventory is overstated, what occurs?
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COGS understated Net inc overstated
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If the beg inventory is understated, what occurs?
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physical flow
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Specific identification method inventory valuation requires __________ of goods to be representative of the cost flow.
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ITR=COGS/avg inv Increase in sales --> increase in COGS Decrease in inven--> lower number in denominator
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What transactions would cause the inventory turnover ratio to increase the most?
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9,000 units left after LIFO (will be first 9000 units): 8000 @ 11 = 88000 1000 @ 12 = 12000 End inv = 100k
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Lance Company has the following inventory units and costs: Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic inventory system?
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With rising prices, FIFO has: -lowest COGS -highest net income -highest income tax exp LIFO has: -highest COGS -lowest net income -lowest income tax exp
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In a period of rising prices which inventory method will result in the greatest amount of income tax expense?
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FIFO because with rising prices, FIFO has lower COGS which means it has higher inventory
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Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which method will result in the highest inventory?
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Perpetual: 12/12 sold 35 units 35 @ 6.75 = 236.25 12/29 sold 10 units 10 @ 7.75 = 77.50 total EI = 313.75 Periodic: Sold 45 units in december 30 @ 7.75 = 232.50 15 @ 6.75 = 101.25 total EI = 333.75
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Big Time Widgets has the following inventory data: December 1 Beginning inventory of 15 units at $6.00 per unit December 7 Purchases 60 units at $6.75 per unit December 12 Sold 35 units December 20 Purchased 30 units at $7.75 per unit December 29 Sold 10 units Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual?
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costs
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Inventory costing methods place primary reliance on assumptions about the flow of ______
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What's left (last 8000 using FIFO): 4000 @ $13 = 52,000 4000 @ $12 = 48,000 total EI = 100k
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Parrish Company has the following inventory units and costs: Units Unit Cost Inventory, Jan. 1 7,000 $11 Purchase, June 19 10,000 12 Purchase, Nov. 8 4,000 13 If 8,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?
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at the end of the fiscal year
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When is a physical inventory usually taken?
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Beg inv [90k] +purchases 620k =COGA [710k] -end inv 60k =COGS 650k beg inv=90k
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Cost of goods purchased is $620,000, ending inventory is $60,000, and cost of goods sold is $650,000. How much is beginning inventory?
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Days in inven= 365/ITR ITR (given) = 6 365/6= 60.8 days in inven
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The following information came from the income statement of the Watson Company: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. Inventory turnover is 6 times per year. What is Watson's days in inventory?
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1. FOB dest means seller pays, which means buyer (Sunrise) did not receive the goods til Jan 2, so subtract this from inventory 2. FOB dest means seller (Sunrise) pays, which means buyer doesn't get their goods until Jan 6, so keep this in inventory 3. Consignment goods do not count as inventory, so subtract this from inventory 752000-112000-6000= 634000 correct EI
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At December 31, Sunrise Company's inventory records indicated a balance of $752,000. Upon further investigation it was determined that this amount included the following: (1) $112,000 of inventory purchased by Sunrise under the terms FOB destination, and this inventory did not arrive until January 2, (2) $74,000 of inventory sold and shipped by Sunrise on December 27 under the terms FOB destination, and this inventory was received by the buyer on January 6. (3) $6,000 of inventory held by Sunrise on consignment from another company. What is Sunrise's correct ending inventory balance at December 31?
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LIFO reserve is the difference between LIFO and FIFO for the current year which is 50,000
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In the current year, a company shows inventory of $280,000 using LIFO. If the company had used FIFO, its inventories would have been higher by $50,000 and $30,000 in the current year and in the prior year, respectively. How much is the company's LIFO reserve in the current year?
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FOB destination
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Ownership passes to the buyer when purchased goods are received by the buyer from a public carrier if the goods are shipped
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Cecil because he owns the goods
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Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?
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just use the lower of the two numbers and add them up 21600+16000+18900= 56500
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Ray's Sounds has accumulated the following cost and market data on March 31: Cost Data Market Data iPods $23,000 $21,600 Cell phones $16,000 $17,500 DVDs $21,000 $18,900 Using the lower-of-cost-or-market, how much is the value of the ending inventory?
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Sales rev -COGS =GP
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Irwin Industries had the following inventory transactions occur during the current year: Units Cost/unit Feb. 1 Purchase 40 $42 Mar. 14 Purchase 60 $43 May 1 Purchase 53 $44 The company sold 100 units at $75 each and has a tax rate of 25%. Assuming that a periodic inventory system is used and operating expenses are $2,000, what is the company's gross profit using LIFO? (rounded to whole dollars)
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BI 20k +purchases 25k =COGA 45k -EI 10k =COGS 35k
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Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold?
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significantly less than 1
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What quality of earnings ratio might a company have if it is using more aggressive accounting techniques in order to accelerate income recognition?
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7/5 debit inven 2000 credit a/p 2000 7/9 debit a/p 400 credit inven 400 7/21 debit a/p 1600 credit cash 1600 they did not pay within discount period
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Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. What is the journal entry when Cosmos pays its bill on July 21?
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3% of 2000= $60 interest if paid 20 days before final due date interest=principal x int rate x time 60=2000 x int rate x 20/360 60/2000 x 360/20 = int rate 54%
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RNA Company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
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A/P debit 4200 Credit inven 126 Credit cash 4074 martin must pay $4074
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Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, Martin must pay
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buyer pays freight cost --> freight in debited (add this cost to purchases when calculating COGS)
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When using a periodic inventory system and the purchaser directly incurs the freight costs, which account is debited?
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Sales rev 450k -sales disc 10k =net sales 440k -COGS 320k =GP 120k -Op exp 85k =Net inc 35k
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Assume that sales revenue are $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. How much are gross profit and operating expenses, respectively?
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2
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A company which uses a perpetual inventory system needs how many journal entries when it sells merchandise?
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net cash provided by op act/net inc
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Quality of earnings ratio
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Gross profit rate=gross profit/net sales net sales 75k -COGS 40k =GP 35k -op exp 25k =net inc 10k 35k/75k = 46.7% gross profit rate
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Net income is $10,000, operating expenses are $25,000, and net sales total $75,000. How much is the gross profit rate?
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6/13 debit inven 750 credit a/p 750 6/16 debit a/p 50 credit inven 50 6/23 debit a/p 700 credit cash 686 credit inven 14
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A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23?
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longer than
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The operating cycle of a merchandising company is ordinarily ____________ that of a service firm.
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avg collection pd= 365/ A/R turnover ratio A/R turnover ratio= net credit sales/avg net A/R 800k/150k = 5.33 365/5.33= ACP is 68.5 days
answer
Net credit sales are $800,000, average net receivables total $150,000, average inventory totals $200,000, and the allowance for doubtful accounts totals $8,000. How much is the average collection period (also known as the days in receivable ratio)?
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face value + interest
answer
What is the maturity value equal to?
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-A promissory note is not a negotiable instrument.
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Which one of these statements about promissory notes is incorrect? -The party to whom payment is to be made is called the payee. -The party making the promise to pay is called the maker. -A promissory note is not a negotiable instrument. -A promissory note is more liquid than an account receivable.
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-Accepting national credit cards for customer purchases
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Which one of the following is not a method used by companies to accelerate cash receipts? -Offering discounts for early payment -Accepting national credit cards for customer purchases -Selling receivables to a factor -Writing off receivables
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1. Debit A/R credit AFDA this reverses the writeoff 2. Debit cash Credit A/R this records the cash collection
answer
When an uncollectible account is recovered after it has been written off, two journal entries are recorded. What are the entries?
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interest= principal x int rate x time = 25000 x 12% x 1/12 (bc 1 month has passed) = 250 6/30 debit int receivable 250 credit int revenue 250
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Baker Co. loaned $25,000 to Idaho Co. on June 1, at 12% interest for 3 months. What *adjusting* entry should Baker Co. record on June 30 before preparing the financial statements on June 30?
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Debit N/R 4000 Credit A/R 4000
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Michael Co. *accepts* a $4,000, 3-month, 8% promissory note in settlement of an account with Tony Co. The entry to record this transaction includes
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interest= principal x int rate x time = 8000 x 9% x 8/12 = 480
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How much accrued interest should be reported on the payee's December 31 balance sheet on a $8,000, 9%, 9-month note receivable issued on May 1?
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Debit AFDA 200 Credit A/R 200
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In September, Oliver Company sold merchandise on account to Mr. Reed for $200 with terms 1/10, n/30. Oliver Company uses the percentage of receivables basis for estimating uncollectible accounts on December 31. On April 18, Oliver Company determines that it will not collect the amount due from Mr. Reed. Prepare the journal entry to record the write-off on April 18.
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Debit AFDA 800 Credit A/R 800
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If a company uses the allowance method for uncollectible accounts, then the entry to record writing-off a customer's $800 account includes
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Debit A/R Credit N/R
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What is the journal entry to record the dishonor of a note receivable?
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increasing, crediting
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When a merchandiser sells goods, it increases Accounts Receivable by debiting it and it _________ Sales Revenue by __________ it.
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August 9th bc April and June have 30 days
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A 120-day promissory note is issued on April 11. What is the note's maturity date?
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6/15 Debit inven 1000 Credit a/p 1000 6/20 Debit a/p 300 Credit inven 300 6/24 Debit A/P 700 Credit cash 686 Credit inven 14
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On June 15, Kelsey Company sold merchandise on account to Buyer Co. for $1,000 with terms 2/10, n/30. On June 20, Buyer Co. returns $300 of merchandise to Kelsey Company. On June 24, Buyer Co. pays the balance due. What is the amount of cash received by Kelsey Company on June 24?
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Gamma has the lowest A/R turnover which means the lowest likelihood to pay back
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In the table below the information for four companies is provided. Company Accounts Receivable turnover Alpha 14.0 Beta 16.5 Gamma 9.5 Delta 11.5 Industry Average 13.0 Assuming all four companies are in the same industry, which company appears to have the lowest likelihood of paying its current obligations?
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Debit N/R 5000 Credit A/R 5000
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On May 2, Cartwright Company receives a $5,000, 6-month, 10% note from Sheldon Company as a settlement of its accounts receivable. What journal entry will Cartwright Company record on May 2?
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AFDA will have a *credit* balance of 21000 after adjustment because that's 7% of the 300k A/R bal
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Net credit sales for the month are $6,000,000 for Stacy Clothiers. Its accounts receivable balance is $300,000. The allowance is calculated as 7% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $10,000 before adjustment. How much is the balance of the allowance account after adjustment?
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1. determining the maturity date 2. computing interest 3. recognizing notes receivable 4. valuing notes receivable 5. disposing of notes receivable.
answer
The five basic issues in accounting for notes receivable are
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1. determining to whom to extend credit 2. establish a payment period 3. monitor collections 4. evaluate the liquidity of receivables 5. accelerate cash receipts from receivables when necessary
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Managing accounts receivable involves five steps. What are they?
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temporary, permanent
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Bad debt expense is a ____ account while AFDA is a _____ account
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ATR= net credit sales/avg net A/R 800k/ (100k+150k)/2 = 6.4 the company collected the equivalent of its average accounts receivable 6.4 times during the year
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Edward Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. The balance of total assets at the beginning of the year was $1,000,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover?
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liquidity
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The accounts receivable turnover ratio measures the _____ of receivables
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100k x 4% = 4000 800 AFDA credit bal already there to get to 4000: Debit bad debt exp 3200 Credit AFDA 3200
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Bright Electronics uses the *percentage of receivables method* for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?
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Interest receivable
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Which of the following should be classified as an "other" receivable? Interest receivable Trade receivables Notes receivable
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80k x 3.5% = 2800 AFDA has a 100 *debit* balance (should be credit) Debit bad debt exp 2900 Credit AFDA 2900
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Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $80,000 at year-end. The total credit sales were $2,500,000 for the year. Management estimates that 3.5% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $100 before the year-end adjusting entry for Bad Debt Expense?
question
int= 10000 x 6% x 120/360 = 200 Debit cash 10200 Credit N/R 10000 Credit int revenue 200
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Schmidt Co. holds Murphy Inc.'s $10,000, 120-day, 6% note. What is the entry to be made by Schmidt Co. when the note is collected, assuming no interest has previously been accrued?
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int = principal x int rate x time = 25000 x 12% x 3/12 = 750 maturity value= 25750
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What is the maturity value of a $25,000, 12%, 3-month note receivable dated March 1?
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400000 x 3% = 12000 Debit cash 388000 Debit service charge 12000 Credit A/R 400000
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Laurel Company factors $400,000 of receivables to Hardy Factors. Hardy Factors assesses a 3% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs?
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Face value -AFDA =cash (net) realizable value
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Cash (net) realizable value is measured as _____
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Cash realizable value
answer
Short-term notes receivable are reported in the current assets section of the balance sheet at
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expected cash realizable value
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Companies report accounts receivable, short-term notes receivable, and other receivables in the current asset section of the balance sheet at their _____
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Debit A/R 25315 Credit N/R 25000 Credit int rev 315
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A company holds a 60-day, 7%, $25,000 note, but the maker of the note *failed to pay* on the maturity date. What will the journal entry be?
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Debit Cash 47500 Debit Serv charge 2500 Credit sales 50000
answer
Good Stuff Retailers accepted $50,000 of Wells Fargo Visa credit card charges for merchandise sold on July 1. Wells Fargo charges 5% for its credit card use. What should Good Stuff Retailers' journal entry be?
question
Credit bal is 18k but 30k of uncollectibles were written off, so add 30k to AFDA *debit* bal unadjusted AFDA bal is 12k debit balance should be 10% of A/R so it should be 20k of credit the credit adjustment needed to give AFDA a 20k credit bal is 32000
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On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $18,000. During the year, it had net credit sales of $750,000 and it had $30,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required *credit adjustment* to the Allowance for Doubtful Accounts at December 31?
question
the direct write-off method and the allowance method for uncollectible accounts.
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The two methods for accounting uses for uncollectible accounts are _____
question
ACP= 365/ATR = 365/7.5 = 48.67 days
answer
Star Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.50. What is its average collection period (also known as the days in receivable ratio)?
question
Service charge expense
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Which of the following accounts is debited when a company factors its accounts receivable? Accounts Receivable Loss on Sale of Accounts Receivable Interest Expense Service Charge Expense
question
Cash realizable value= A/R - AFDA AFDA unadjusted: 12k credit Expected AFDA: 65k 800k- 65k = 735k net realizable value
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An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $800,000; Allowance for doubtful accounts balance before adjustment (credit balance), $12,000; Amounts expected to become uncollectible, $65,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries?
question
debit Cash 6650 debit Service charge 350 Credit sales 7000
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Kensington Company sold $7,000 of merchandise to customers who charged their purchases with a bank credit card. Kensington's bank charges it a 5% fee. What is the journal entry?
question
End A/R: 245k+ (1.1m-990k) -14k = 341k CRV: 341k - 17k = 324k end bal Beg CRV: 245k-12250= 232750 End CRV 324k - Beg CRV 232750 = 91250 increase in cash realizable value
answer
The following information relates to the beginning of the year: Accounts receivable, $245,000 Allowance for doubtful accounts (credit balance), $12,250 During the current year, sales on account were $1,100,000 and collections on account were $990,000. Also during the current year, the company wrote off $14,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $17,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value *change* during the current year?
question
A/R balance
answer
When an account is written off as uncollectible, ______ decreases
question
Debit misc expense 30 Credit cash 30
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Which of the following is the correct adjusting journal entry for the bank account holder when notified of a bank debit memorandum for a monthly service charge of $30?
question
Segregation of duties
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An office supply store has a cashier who is also the accounts receivable clerk for the company. Which internal control principle is violated?
question
Cash bal per books 75750 +notes collected by bank (incl interest) 4500 -NSF check 500 -service charge 50 -company error 90 =adj cash bal per books 79610
answer
Triple Company collected the following information to prepare its September bank reconciliation: Cash balance per books, December 31, $75,750. Note receivable of $4,200 plus $300 of interest collected, $4,500. Outstanding checks, $14,500. Deposits in transit, $10,250. Triple Company erroneously recorded a $320 outflow as a $230 cash outflow. The bank erroneously subtracted $750 from Triple Company's checking account. The bank should have subtracted the money to a different customer's account. Bank service charges, $50. NSF check, $500. How much is the adjusted cash balance per books on December 31?
question
cash bal per bank 43800 +deposits in transit 2300 -outstanding checks 4900 =adj cash bal per bank 41200
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Barker Company collected the following information to prepare its June bank reconciliation: Cash balance per bank, June 30, $43,800. Note receivable of $3,800 plus $200 of interest collected, $4,000. Outstanding checks, $4,900. Deposits in transit, $2,300. Bank service charges, $50. NSF check, $450. How much is the adjusted cash balance per bank on June 30?
question
collusion between employees
answer
Which of the following is not a principle of internal control? Collusion between employees Segregation of duties Bonding of employees Documentation procedures
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Physical controls
answer
Under which of the following do computer programs that limit unauthorized access to certain files fall? Documentation procedures Independent internal verification Human resource controls Physical controls
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Cash bal per bank records *bank* errors A deposit of $10,000 was incorrectly recorded by bank as a deposit of $1,000.
answer
For which of the following errors should the appropriate amount be added to the cash balance per bank statement on a company's bank reconciliation? -A deposit of $10,000 was incorrectly recorded by bank as a deposit of $1,000. -A check written by the company for $1,200 was incorrectly recorded by the company as $120. -A check written by the company for $980 was incorrectly recorded on the company's books as $890. -A check written by the company for $110 was incorrectly recorded on the company's books as $101.
question
internal controls
answer
The Sarbanes-Oxley Act requires all publicly traded U.S. companies to maintain an adequate system of ________
question
Independent bank reconciliations
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Which one of the following is not a physical control? -Locked warehouses for inventories -Independent bank reconciliations -Bank safety deposit boxes for important papers -Safes and vaults to store cash
question
Beginning outstanding checks (from September), $4,500 +Checks issued during October, $45,700 -Checks that cleared the bank during October, ($39,800) =Ending outstanding check bal $10,400 don't include NSF because it was not a check written by springer company
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Springer Company listed outstanding checks totaling $4,500 on its September bank reconciliation. In October, the company issued checks totaling $45,700. The October bank statement shows that checks totaling $39,800 cleared the bank. In addition, a check from one of Springer's customers in the amount of $500 was returned as NSF. The outstanding checks on the October bank reconciliation should total
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Deposits in transit do require a journal-entry once the bank reconciliation is completed. Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will clear in the future periods. No adjusting entry is needed.
answer
Which of the following statements is false with regards to record-keeping for bank reconciliations? Selected Answer: -Outstanding checks do not require a journal-entry once the bank reconciliation is completed. -Bank errors do not require a journal-entry once the bank reconciliation is completed. -Deposits in transit do require a journal-entry once the bank reconciliation is completed. -NSF checks do require a journal-entry once the bank reconciliation is completed.
question
added to the bank balance
answer
As used in a bank reconciliation, how are deposits in transit handled? -Deducted from the book balance -Added to the book balance -Added to the bank balance -Deducted from the bank balance
question
1. Control environment 2. Risk assessment 3. Control activities 4. Information and communication 5. Monitoring
answer
The five primary components of an internal control system are
question
service charge
answer
Why might a bank issue a debit memorandum to a depositor's account?
question
decrease
answer
A debit memorandum causes a ______ in the account balance
question
Cash bal per books 7000 + notes collected by bank 300 -NSF 225 -service charges 45 =adj CBPBook 7030
answer
Jones Company collected the following information to prepare its July bank reconciliation: Cash balance per books, July 31, $7,000. Deposits in transit, $600. Notes receivable with interest collected by bank, $300. Bank service charges, $45. Outstanding checks, $330. NSF check, $225. How much is the adjusted cash balance per books on July 31?
question
continuous
answer
Internal auditors are employees of the company and _______ evaluate the effectiveness of the company's internal control systems.
question
not continuous
answer
External auditors and public accountants evaluate the internal controls of a company during the audit cycle and it is _______
question
CBPBank 71600 +deposits in transit 1500 -outstanding checks 6400 -bank error 1000 =adj CBPBank 65700
answer
Double Company collected the following information to prepare its April bank reconciliation: Cash balance per bank, April 30, $71,600. Note receivable of $1,900 plus $200 of interest collected, $2,100. Outstanding checks, $6,400. Deposits in transit, $1,500. Double Company erroneously recorded a $1,200 cash outflow as a $2,100 cash outflow. The bank erroneously added $1,000 to Double Company's checking account. The bank should have added the money to a different customer's account. Bank service charges, $10. NSF check, $500. How much is the adjusted cash balance per bank on April 30?
question
freight in, purchases
answer
When the buyer pays freight, it's considered ________ and it's added to ______
question
freight out, op expenses
answer
When seller pays freight, it's considered _______ and added to _______
question
Earnings have high quality if they provide a full and transparent depiction of how a company performed.
answer
Dorcas Corporation reported sales revenue of $257,000, net income of $45,300, cash of $9,300, and net cash provided by operating activities of $23,200. Accounts receivable have increased at three times the rate of sales during the last 3 years. Explain what is meant by high quality of earnings.
question
4/5 Debit inven 28k Credit A/P 28k 4/8 Debit A/P 3600 Credit inven 3600 4/15 Debit A/P 24400 Credit cash 24156 Credit inven 244
answer
On April 5, purchased merchandise from Frost Company for $28,000, terms 1/10, n/30. On April 8, returned $3,600 of April 5 merchandise to Frost Company. On April 15, paid the amount due to Frost Company in full. Prepare the journal entry to record the April 15 transaction listed above on Crisp Co.'s books. Crisp Co. uses a perpetual inventory system.
question
Purchases 500000 -purchase R+A 25000 =Net purchases 475000 12/14 Debit cash 47500 Credit A/R 475000
answer
The following transactions are for Solarte Company. On December 3, Solarte Company sold $500,000 of merchandise to Rooney Co., terms 1/10, n/30. The cost of the merchandise sold was $330,000. On December 8, Rooney Co. was granted an allowance of $25,000 for merchandise purchased on December 3. On December 14, Solarte Company received the balance due from Rooney Co. Describe the journal entry to record the December 14 transaction on the books of Solarte Company. Solarte uses a perpetual inventory system.
question
1. 65000 already included in inven so don't change it 2. 90000 should not be changed because it was already taken out of inventory 3. add 33000 to inventory because FOB ship means we owned the goods when they were shipped on Dec 26 275k +33k =308k correct inven
answer
Columbia Bank and Trust is considering giving Gallup Company a loan. Before doing so, it decides that further discussions with Gallup's accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $275,000. Discussions with the accountant reveal the following. i. Gallup sold goods costing $65,000 to Bazil Company FOB shipping point on December 28. The goods are not expected to reach Bazil until January 12. The goods were not included in the physical inventory because they were not in the warehouse. ii. The physical count of the inventory did not include goods costing $90,000 that were shipped to Gallup FOB destination on December 27 and were still in transit at year-end. iii. Gallup received goods costing $33,000 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count. Determine the correct inventory amount on December 31.
question
add up first two 48+53= 101 COGS
answer
On December 1, Quality Electronics has three DVD players left in stock. All are identical, all are priced to sell at $105. One of the three DVD players left in stock, with serial #1012, was purchased on June 1 at a cost of $53. Another, with serial #1045, was purchased on November 1 for $48. The last player, serial #1056, was purchased on November 30 for $42. Calculate the cost of goods sold using the FIFO periodic inventory method, assuming two of the three DVD players were sold by the end of December, Quality Electronics' year-end.
question
ii should be included on the first company's inventory (the company wanting to consign their good) but not the second company's inventory
answer
Mateo Inc. had the following inventory situations to consider at January 31, its year-end. (i) Goods held on consignment for Schrader Corp. since December 12. (ii) Goods shipped on consignment to Lyman Holdings Inc. on January 5. (iii) Office supplies on hand at January 31. Identify whether the items should be included or not included in inventory.
question
Net realizable value= A/R-AFDA Beg A/R 200k + (800k-763k) -7k (writeoff) (3100 not included bc the writeoff was recovered) =230000 AFDA (given) 25000 230k-25k= 205k NRV
answer
At the beginning of the current period, Griffey Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $6,000 (credit). During the period, it had net credit sales of $800,000 and collections of $763,000. It wrote off as uncollectible accounts receivable of $7,000. However, a $3,100 account previously written off as uncollectible was recovered before the end of the current period. Uncollectible accounts are estimated to total $25,000 at the end of the period. What is the net realizable value of the receivables at the end of the period?
question
lower
answer
Companies want to have a ______ days in receivable ratio
question
1. E, selling receivables to a factor can accelerate cash receipts from receivables 2. A, reviewing company ratings can help determine if we should extend credit to them or not 3. B, collecting info on competitor's payment policies can help us determine what our payment period should be 4. C, Preparing monthly A/R aging schedule and investigating problem accounts can help us monitor our collections 5. D, calculating A/R turnover and avg collection period will help us determine the liquidity of our receivables
answer
1. Selling receivables to a factor. 2. Reviewing company ratings in The Dun and Bradstreet Reference Book of American Business. 3. Collecting information on competitors' payment period policies. 4. Preparing monthly accounts receivable aging schedule and investigating problem accounts. 5. Calculating the accounts receivable turnover and average collection period. Match each of the activities listed above with a purpose pf the activity listed below. (a) Determine to whom to extend credit. (b) Establish a payment period. (c) Monitor collections (d) Evaluate the liquidity of receivables (e) Accelerate cash receipts from receivables when necessary What are the correct matches?
question
Beg A/R 38k +Credit sales 413k -collections 275k =End A/R 176k
answer
Kimbrel Corp. significantly reduced its requirements for credit sales. As a result, sales during the current year increased dramatically. It had receivables at the beginning of the year of $38,000 and ending receivables of $176,000. Credit sales were $413,000. Determine cash collections during the period.
question
7% of 100k is 7000 + 1200 debit bal in AFDA Debit Bad debt exp 8200 Credit AFDA 8200
answer
On December 31, 2013, when its Allowance for Doubtful Accounts had a debit balance of $1,200, Hunt Co. estimates that 7% of its accounts receivable balance of $100,000 will become uncollectible and records the necessary adjustment to Allowance for Doubtful Accounts. On May 11, 2014, Hunt Co. determined that J. Byrd's account was uncollectible and wrote off $1,200. On June 12, 2014, Byrd paid the amount previously written off. Prepare the journal entry for December 31, 2013.
question
seller's journal entry for cash collection w/ discount Debit cash 8820 Debit sales disc 180 Credit A/R 9000
answer
On January 6, Aaron Co. sells merchandise on account to Foley Inc. for $9,000, terms 2/10, n/30. On January 16, Foley pays the amount due. Prepare Aaron Company's January 16th journal-entry.
question
seller's jounal entry for cash collection w/ serv charge Debit cash 3884 Debit serv charge exp 116 Credit sales rev 4000
answer
On May 10, Renn Company sold merchandise for $4,000 and accepted the customer's First Business Bank Master card. At the end of the day, the First Business Bank Master card receipts were deposited in the company's bank account. First Business Bank charges a 2.9% service charge for credit card sales. Prepare the entry on Renn Company's books to record the sale of merchandise.
question
11/1 Debit N/R 60000 Credit cash 60000 12/11 Debit N/R 3600 Credit Sales rev 3600 12/16 Debit N/R 12000 Credit A/R 12000 12/31 Debit Int receivable Credit int revenue
answer
Nov. 1 Loaned $60,000 cash to B. Carr on a 12·month, 7% note. Dec. 11 Sold goods to R. P. Kiner, Inc., receiving a $3,600, 90-day, 8% note. Dec. 16 Received a $12,000, 180-day, 9% note to settle an open account from M. Adcock. Dec. 31 Accrued interest revenue on all notes receivable. What are the journal entries for these?
question
1/10 Debit A/R 1700 Credit sales rev 1700 2/12 debit Cash 1000 credit A/R 1000 3/10 Debit A/R 10.50 (1.5% x 700) Credit int rev 10.50
answer
On January 10, Allison Milo uses her Crawford Co. credit card to purchase merchandise from Crawford Co. for $1,700. On February 10, Milo is billed for the amount due of $1,700. On February 12, Milo pays $1,000 on the balance due. On March 10, Milo is billed for the amount due, including interest at 1.5% per month on the unpaid balance as of February 12. Prepare the entries on Crawford Co.'s books related to the transaction that occurred on March 10. (Omit cost of goods sold entries.)
question
6% of 78k = 4680 AFDA currently has 500 credit Adj entry: Debit bad debt exp 4180 Credit AFDA 4180
answer
The ledger of Wainwright Company at the end of the current year shows Accounts Receivable $78,000; Credit Sales $810,000; and Sales Returns and Allowances $40,000. If Allowance for Doubtful Accounts has a credit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 6% of accounts receivable.
question
segregation of duties and physical controls
answer
Bank employees use a system known as the "maker-checker'' system. An employee will record an entry in the appropriate journal, and then a supervisor will verify and approve the entry. These days, as all of a bank's accounts are computerized, the employee first enters a batch of entries into the computer, and then the entries are posted automatically to the general ledger account after the supervisor approves them on the system. Access to the computer system is password-protected and task-specific, which means that the computer system will not allow the employee to approve a transaction or the supervisor to record a transaction. Identify the principles of internal control inherent in the "maker-checker" procedure used by banks.
question
Deposits per bank in July 15600 -Deposits in transit 450 = 15150 deposited in july Deposits per books in July 16800 -Amt deposited in July 15150 =Deposits in transit 1650
answer
The cash records of Downs Company show the following for July: The June 30 bank reconciliation indicated that deposits in transit total $450. During July, the general ledger account Cash shows deposits of $16,800, but the bank statement indicates that only $15,600 in deposits were received during the month. Compute the deposits in transit at July 31.
question
Debit A/P 270 Credit Cash 270
answer
A check for $300 to a creditor on account that cleared the bank in August was journalized and posted for $30. Journalize the adjusting entry associated with the check that was posted incorrectly.
question
(i) Human resource controls---Cashiers are not bonded and no background checks. (ii) Establishment of responsibility---Inability to establish responsibility for cash on a specific clerk.
answer
The following control procedures are used in Kelton Company for over-the-counter cash receipts. (i) Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy. (ii) All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer. For each procedure, identify the control principle that is violated.
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