Questions and Answers of Financial And Managerial Accounting

Atlantis Company’s ending inventory is understated $4,000. The effects of this error on the current year’s cost of goods sold and net income, respectively, are:(a) understated, overstated.(b)
Harold Company overstated its inventory by $15,000 at December 31, 2013. It did not correct the error in 2013 or 2014. As a result, Harold’s stockholders’ equity was:(a) overstated at December
Which of these would cause the inventory turnover ratio to increase the most?(a) Increasing the amount of inventory on hand.(b) Keeping the amount of inventory on hand constant but increasing
Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. Carlos’s days in inventory is:(a) 73 days.(b) 121.7 days.(c)
Songbird Company has sales of $150,000 and cost of goods available for sale of $135,000. If the gross profit rate is 30%, the estimated cost of the ending inventory under the gross profit method
In a perpetual inventory system:(a) LIFO cost of goods sold will be the same as in a periodic inventory system.(b) average costs are based entirely on unit cost averages.(c) a new average is computed
Hasbeen Company completed its inventory count. It arrived at a total inventory value of $200,000. As a new member of Hasbeen’s accounting department, you have been given the information listed
The accounting records of Shumway Ag Implement show the following data.Determine the cost of goods sold during the period under a periodic inventory system using(a) the FIFO method,(b) the LIFO
(a) Tracy Company sells three different types of home heating stoves (gas, wood, and pellet).The cost and market value of its inventory of stoves are as follows.Determine the value of the company’s
Early in 2014, Westmoreland Company switched to a just-in-time inventory system. Its sales, cost of goods sold, and inventory amounts for 2013 and 2014 are shown below.Determine the inventory
Gerald D. Englehart Company has the following inventory, purchases, and sales data for the month of March.The physical inventory count on March 31 shows 500 units on hand.Instructions Under a
Yang Company purchased 2,000 widgets and has 400 widgets in its ending inventory at a cost of $90 each and a current replacement cost of $80 each. The net realizable value of each unit in the ending
Specific identification:(a) must be used under IFRS if the inventory items are not interchangeable.(b) cannot be used under IFRS.(c) cannot be used under GAAP.(d) must be used under IFRS if it would
IFRS requires the following:(a) Ending inventory is written up and down to net realizable value each reporting period.(b) Ending inventory is written down to net realizable value but cannot be
Identify which control activity is violated in each of the following situations, and explain how the situation creates an opportunity for a fraud.1. The person with primary responsibility for
L. R. Cortez is concerned about the control over cash receipts in his fast-food restaurant, Big Cheese. The restaurant has two cash registers. At no time do more than two employees take customer
Bateer Company established a $50 petty cash fund on July 1. On July 30, the fund had $12 cash remaining and petty cash receipts for postage $14, office supplies $10, and delivery expense $15. Prepare
Sally Kist owns Linen Kist Fabrics. Sally asks you to explain how she should treat the following reconciling items when reconciling the company’s bank account: (1) a debit memorandum for an NSF
Poorten Company’s bank statement for May 2014 shows the following data.The cash balance per books at May 31 is $13,319. Your review of the data reveals the following.1. The NSF check was from
Which of the following is not an element of the fraud triangle?(a) Rationalization.(b) Financial pressure.(c) Segregation of duties.(d) Opportunity.
An organization uses internal control to enhance the accuracy and reliability of its accounting records and to:(a) safeguard its assets.(b) prevent fraud.(c) produce correct financial statements.(d)
Which of the following was not a result of the Sarbanes-Oxley Act?(a) Companies must file financial statements with the Internal Revenue Service.(b) All publicly traded companies must maintain
The principles of internal control do not include:(a) establishment of responsibility.(b) documentation procedures.(c) management responsibility.(d) independent internal verification.
Physical controls do not include:(a) safes and vaults to store cash.(b) independent bank reconciliations.(c) locked warehouses for inventories.(d) bank safety deposit boxes for important papers.
Permitting only designated personnel to handle cash receipts is an application of the principle of:(a) segregation of duties.(b) establishment of responsibility.(c) independent check.(d) human
Which of the following control activities is not relevant to when a company uses a computerized (rather than manual) accounting system?(a) Establishment of responsibility.(b) Segregation of
The use of prenumbered checks in disbursing cash is an application of the principle of:(a) establishment of responsibility.(b) segregation of duties.(c) physical controls.(d) documentation procedures.
A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash. In recording the check, the company should:(a) debit Cash Over and Short for $2.(b)
The control features of a bank account do not include:(a) having bank auditors verify the correctness of the bank balance per books.(b) minimizing the amount of cash that must be kept on hand.(c)
In a bank reconciliation, deposits in transit are:(a) deducted from the book balance.(b) added to the book balance.(c) added to the bank balance.(d) deducted from the bank balance.
The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:(a) outstanding checks.(b) deposit in transit.(c) a bank error.(d) bank service charges.
Which of the following items in a cash drawer at November 30 is not cash?(a) Money orders.(b) Coins and currency.(c) A customer check dated December1.(d) A customer check dated November 28.
Which of the following statements correctly describes the reporting of cash?(a) Cash cannot be combined with cash equivalents.(b) Restricted cash funds may be combined with cash.(c) Cash is listed
Which of the following is the correct accounting under IFRS for cash?(a) Cash cannot be combined with cash equivalents.(b) Restricted cash funds may be reported as a current or non-current asset
Cash equivalents under IFRS:(a) are significantly different than the cash equivalents discussed in the textbook.(b) are generally disclosed separately from cash.(c) may be required to be reported
Brule Co. has been in business five years. The ledger at the end of the current year shows:Bad debts are estimated to be 10% of receivables. Prepare the entry to adjust Allowance for Doubtful
Mehl Wholesalers Co. has been expanding faster than it can raise capital. According to its local banker, the company has reached its debt ceiling. Mehl’s suppliers (creditors)are demanding payment
Gambit Stores accepts from Leonard Co. a $3,400, 90-day, 6% note dated May 10 in settlement of Leonard’s overdue account. (a) What is the maturity date of the note? (b) What entry does Gambit make
In 2014, Phil Mickelson Company has net credit sales of $923,795 for the year. It had a beginning accounts receivable (net) balance of $38,275 and an ending accounts receivable (net) balance of
The following selected transactions relate to Dylan Company.Instructions Prepare the journal entries for the transactions. Mar. 1 11 12 13 15 Apr. 11 13 May 10 June 30 Sold $20,000 of merchandise to
Receivables are frequently classified as:(a) accounts receivable, company receivables, and other receivables.(b) accounts receivable, notes receivable, and employee receivables.(c) accounts
Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000, terms 2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On June 24, payment is
Which of the following approaches for bad debts is best described as a balance sheet method?(a) Percentage-of-receivables basis.(b) Direct write-off method.(c) Percentage-of-sales basis.(d) Both a
Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at
Use the same information as in question 4, except that Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. In this
Net sales for the month are $800,000, and bad debts are expected to be 1.5% of net sales. The company uses the percentage-of-sales basis. If Allowance for Doubtful Accounts has a credit balance of
In 2014, Roso Carlson Company had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts
An analysis and aging of the accounts receivable of Prince Company at December 31 reveals the following data.Accounts receivable $800,000 Allowance for doubtful accounts per books before adjustment
One of the following statements about promissory notes is incorrect. The incorrect statement is:(a) The party making the promise to pay is called the maker.(b) The party to whom payment is to be made
Which of the following statements about Visa credit card sales is incorrect?(a) The credit card issuer makes the credit investigation of the customer.(b) The retailer is not involved in the
Blinka Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1.Citibank charges 4% for its credit card use. The entry to record this transaction by Blinka
Foti Co. accepts a $1,000, 3-month, 6% promissory note in settlement of an account with Bartelt Co. The entry to record this transaction is as follows. (a) Notes Receivable Accounts Receivable (b)
Ginter Co. holds Kolar Inc.’s $10,000, 120-day, 9% note.The entry made by Ginter Co. when the note is collected, assuming no interest has been previously accrued, is: (a) Cash Notes Receivable (b)
Accounts and notes receivable are reported in the current assets section of the balance sheet at:(a) cash (net) realizable value(b) net book value.(c) lower-of-cost-or-market value.(d) invoice cost.
Oliveras Company had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in accounts receivable at the beginning of the year was $100,000, and the end of the
Under IFRS, loans and receivables are to be reported on the balance sheet at:(a) amortized cost.(b) amortized cost adjusted for estimated loss provisions.(c) historical cost.(d) replacement cost.
Which of the following statements is true?(a) The fair value option requires that some types of financial instruments be recorded at fair value.(b) The fair value option allows, but does not require,
Assume that Drummond Heating and Cooling Co. purchases a delivery truck for $15,000 cash, plus sales taxes of $900 and delivery costs of $500. The buyer also pays $200 for painting and lettering,
On January 1, 2014, Iron Mountain Ski Corporation purchased a new snow-grooming machine for $50,000. The machine is estimated to have a 10-year life with a $2,000 salvage value. What journal entry
Chambers Corporation purchased a piece of equipment for $36,000. It estimated a 6-year life and $6,000 salvage value. Thus, straight-line depreciation was $5,000 per year [($36,000 – $6,000) ÷ 6].
Overland Trucking has an old truck that cost $30,000, and it has accumulated depreciation of $16,000 on this truck. Overland has decided to sell the truck. (a) What entry would Overland Trucking make
Match the statement with the term most directly associated with it.1. _______ The allocation of the cost of a natural resource to expense in a rational and systematic manner.2. _______ Rights,
On January 1, 2014, Skyline Limousine Co. purchased a limo at an acquisition cost of $28,000. The vehicle has been depreciated by the straight-line method using a 4-year service life and a $4,000
Erin Danielle Company purchased equipment and incurred the following costs.What amount should be recorded as the cost of the equipment?(a) $24,000. (c) $25,400.(b) $25,200. (d) $25,800. Cash price
Depreciation is a process of:(a) valuation. (c) cash accumulation.(b) cost allocation. (d) appraisal.
Micah Bartlett Company purchased equipment on January 1, 2013, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years.
Ann Torbert purchased a truck for $11,000 on January 1, 2013. The truck will have an estimated salvage value of $1,000 at the end of 5 years. Using the units of activity method, the balance in
Jefferson Company purchased a piece of equipment on January 1, 2014. The equipment cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense
When there is a change in estimated depreciation:(a) previous depreciation should be corrected.(b) current and future years’ depreciation should be revised.(c) only future years’ depreciation
Able Towing Company purchased a tow truck for $60,000 on January 1, 2012. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December
Additions to plant assets are:(a) revenue expenditures.(b) debited to the Maintenance and Repairs Expense account.(c) debited to the Purchases account.(d) capital expenditures.
Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2014. The machine was purchased for $80,000 on January 1, 2010, and was depreciated on a straight-line basis
Maggie Sharrer Company expects to extract 20 million tons of coal from a mine that cost $12 million. If no salvage value is expected and 2 million tons are mined and sold in the first year, the entry
Which of the following statements is false?(a) If an intangible asset has a finite life, it should be amortized.(b) The amortization period of an intangible asset can exceed 20 years.(c) Goodwill is
Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2, 2014.On July 31, 2014, Beyerlein paid $35,000 for legal fees
Indicate which of the following statements is true.(a) Since intangible assets lack physical substance, they need be disclosed only in the notes to the financial statements.(b) Goodwill should be
Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company’s asset turnover
S chopenhauer Company exchanged an old machine, with a book value of $39,000 and a fair value of $35,000, and paid $10,000 cash for a similar new machine. The transaction has commercial substance. At
In exchanges of assets in which the exchange has commercial substance:(a) neither gains nor losses are recognized immediately.(b) gains, but not losses, are recognized immediately.(c) losses, but not
Kate Browne, president of Hair It Is, Inc., has just rented space in a shopping mall in which she will open and operate a beauty salon. A friend has advised Kate to set up a double-entry set of
As president and sole stockholder, Kate Browne engaged in the following activities in establishing her beauty salon, Hair It Is, Inc.1. Opened a bank account in the name of Hair It Is, Inc. and
Kate Browne recorded the following transactions in a general journal during the month of March.Post these entries to the Cash account of the general ledger to determine the ending balance in cash.
The following accounts come from the ledger of SnowGo Corporation at December 31, 2014.Prepare a trial balance in good form. 157 Equipment 332 Dividends 201 Accounts Payable Salaries and 726 Wages
Bob Sample and other student investors opened Campus Laundromat Inc. on September 1, 2014. During the first month of operations, the following transactions occurred.The chart of accounts for the
Which of the following statements about an account is true?(a) In its simplest form, an account consists of two parts.(b) An account is an individual accounting record of increases and decreases in
The expanded accounting equation is: (a) Assets + Liabilities Common Stock + Retained Earnings + Dividends + Revenues + Expenses (b) Assets = Liabilities + Common Stock + Retained Earnings +
Which of the following is not part of the recording process?(a) Analyzing transactions.(b) Preparing a trial balance.(c) Entering transactions in a journal.(d) Posting transactions.
The purchase of supplies on account should result in:(a) a debit to Supplies Expense and a credit to Cash.(b) a debit to Supplies Expense and a credit to Supplies.(c) a debit to Supplies and a credit
Before posting a payment of $5,000, the Accounts Payable of Senator Corporation had a normal balance of$16,000. The balance after posting this transaction was:(a) $21,000.(b) $5,000.(c) $11,000.(d)
The trial balance of Clooney Corporation had accounts with the following normal balances: Cash$5,000, Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages Expense $40,000,
The expanded accounting equation under IFRS is as follows: (a) Assets = Liabilities + Common Stock + Retained Earnings + Dividends + Revenues Expenses. (b) Assets + Liabilities = Common Stock +
The ledger of Hammond, Inc., on March 31, 2014, includes these selected accounts before adjusting entries are prepared.An analysis of the accounts shows the following.1. Insurance expires at the rate
Micro Computer Services Inc. began operations on August 1, 2014. At the end of August 2014, management attempted to prepare monthly financial statements. The following information relates to
Skolnick Co. was organized on April 1, 2014. The company prepares quarterly financial statements. The adjusted trial balance amounts at June 30 are shown below.(a) Determine the net income for the
The Green Thumb Lawn Care Inc. began on April 1. At April 30, the trial balance shows the following balances for selected accounts.Analysis reveals the following additional data.1. Prepaid insurance
The time period assumption states that:(a) revenue should be recognized in the accounting period in which a performance obligation is satisfied.(b) expenses should be matched with revenues.(c) the
Which of the following statements about the accrual basis of accounting is false?(a) Events that change a company’s financial statements are recorded in the periods in which the events occur.(b)
The principle or assumption dictating that efforts (expenses) be matched with accomplishments (revenues) is the:(a) expense recognition principle.(b) cost assumption.(c) time period principle.(d)
Adjusting entries are made to ensure that:(a) expenses are recognized in the period in which they are incurred.(b) revenues are recorded in the period in which services are provided.(c) balance sheet
Each of the following is a major type (or category) of adjusting entries except:(a) prepaid expenses. (c) accrued expenses.(b) accrued revenues. (d) recognized revenues.

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