ACC 131

What is the primary role of internal controls in managing a business? 

A.  To prevent cash from being stolen 
B.  To constrain subordinates' activities in order to prevent employees from deviating from the scope of their responsibilities and encouraging them to act in the best interest of the business 
C.  To ensure that the financial statements are presented in such a manner as to provide relevant and reliable information for financial statement users and the company's creditors 
D.  To encourage theft and to ensure that segregation of duties does not take place

Which of the following is NOT one of the three areas for which internal control systems are intended to provide reasonable assurance? 

A.  Certification that the financial statements are without error
B.  Compliance with applicable laws and regulations 
C.  Effectiveness and efficiency of operations 
D.  Reliability of the financial reporting 

Which of the following is NOT one of the five components of internal controls? 

A.  Information and communication 
B.  Control environment
C.  Risk assessment 
D.  Analysis of control procedures 

Which of the following is NOT one of the five categories of control activities? 

A.  Checks on recorded amounts 
B.  Clearly defined authority and responsibility 
C.  Segregation of duties
D.  Defalcation and financial reporting 

The internal audit function is part of what element of the internal control system? 

A.  Monitoring 
B.  Risk assessment 
C.  Control environment 
D.  Control activities

Which of the following is NOT generally an internal control activity? 

A.  Establishing clear lines of authority to carry out specific tasks 
B.  Reducing the cost of hiring seasonal employees 
C.  Limiting access to computerized accounting records
D.  Physically counting inventory in a perpetual inventory system 

Allowing only certain employees to order goods and services for the company is an example of what internal control procedure? 

A.  Checks on recorded amount
B.  Safeguarding of assets and records 
C.  Adequate documents and records 
D.  Clearly defined authority and responsibility 

Deposits made by a company but not yet reflected in a bank statement are called 

A.  deposits in transit. 
B.  debit memoranda. 
C.  credit memoranda. 
D.  None of the above.

Which one of the following would not appear on a bank statement for a checking account? 

A.  Service charges 
B.  Deposits 
C.  Interest earned 
D.  Outstanding checks

The operating cycle is best described as the time between 

A.  purchase of goods for resale and collection of cash from customers.
B.  the formation of the company and the start of operations. 
C.  production and sale of inventory. 
D.  the sale of inventory and collection of receivables. 

Which of the following statements is true? 

A.  The person handling the cash should also prepare the bank reconciliation.
B.  Sound internal control practice dictates that cash disbursements should be made by check, unless the disbursement is very small. 
C.  Good cash management practices dictate that a company should maintain as large a balance as possible in its cash account. 
D.  Petty cash can be substitutes for a checking account to expedite the payment of all disbursements. 

Food to Go is a local catering service. Conceptually, when should Food To Go recognize revenue from its catering service? 

A.  At the date the meals are served 
B.  At the date the invoice is mailed to the customer 
C.  At the date the customer's payment is received
D.  At the date the customer places the order 

When is revenue from the sale of merchandise normally recognized? 

A.  When the customer pays for the merchandise 
B.  Either on the date the customer takes possession of the merchandise or the date on which the customer pays 
C.  When the customer takes possession of the merchandise
D.  When the customer takes possession of the merchandise, if sold for cash, or when payment is received, if sold on credit 

What does the phrase, "Revenue is recognized at the point of sale" mean? 

A.  Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to the customer. 
B.  Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer.
C.  Revenue is recorded in the accounting records when the goods are sold to a customer and reported on the income statement when the cash payment is received from the customer. 
D.  Revenue is recorded in the accounting records when the cash is received from a customer and reported on the income statement when sold to the customer. 

On August 31, 2019, Montana Corporation signed a 4-year contract to provide services for Minefield Company at $30,000 per year. Minefield will pay for each year of services on the first day of each service year, starting with September 1, 2019. Using the accrual basis of accounting, when should Montana recognize revenue? 

A.  On the first day of each year when the cash is received 
B.  On the last day of each year after the services have been provided 
C.  Equally throughout the year as services are provided 
D.  Only at the end of the entire contract

On April 20, McLean Company provides lawn care services to Tazwell Corporation for $3,000 with terms 1/10, n/30. On April 28, Tazwell pays for half of the services provided, and on May 19 it pays for the other half. What is the total amount of cash McLean received? 

A.  $2,700` 
B.  $2,970
C.  $2,985 
D.  $3,000 

Which of the following best describes the allowance for doubtful accounts? 

A.  Income statement account 
B.  Cash flow account 
C.  Contra-account 
D.  Liability account

If a company uses the direct write-off method of accounting for bad debts, 

A.  it is applying the matching principle. 
B.  it will report accounts receivable on the balance sheet at their net realizable value. 
C.  it will record bad debt expense only when an account is determined to be uncollectible.
D.  it will reduce the Accounts Receivable account at the end of the accounting period for estimated uncollectible accounts. 

Which of the following best describes the objective of estimating bad debt expense with the percentage of credit sales method? 

A.  To estimate bad debt expense based on a percentage of credit sales made during the period 
B.  To estimate the amount of bad debt expense based on an aging of accounts receivable 
C.  To facilitate the use of the direct write-off method
D.  To determine the amount of uncollectible accounts during a given period 

Which of the following best describes the concept of the aging method of receivables? 

A.  Accounts receivable should be directly written off when the due date arrives and the customers have not paid the bill.
B.  Estimating the appropriate balance for the allowance for doubtful accounts results in the appropriate value for net accounts receivable on the balance sheet. 
C.  The precise amount of bad debt expense may be arrived at by multiplying historical bad debt rates by the amount of credit sales made during a period. 
D.  An accurate estimate of bad debt expense may be arrived by multiplying historical bad debt rates by the amount of credit sales made during the period. 

The aging method is closely related to the 

A.  statement of retained earnings.
B.  statement of cash flows. 
C.  income statement. 
D.  balance sheet. 

The percentage of credit sales approach is closely related to the 

A.  balance sheet. 
B.  income statement. 
C.  statement of retained earnings. 
D.  statement of cash flows

Zenephia Corp. accepted a 9-month note receivable from a customer on October 1, 2019. If Zenephia has an accounting period which ends on December 31, 2019, when would it most likely recognize interest income from the note? 

A.  December 31, 2019, only 
B.  October 1, 2019 
C.  June 30, 2020, only
D.  December 31, 2019, and June 30, 2020 

The "principal" of a note receivable refers to 

A.  the amount of cash borrowed. 
B.  the amount of interest due. 
C.  the financing company that is lending the money.
D.  the present value of the note. 

If a customer is unhappy with a product and the company reduces the amount the customer must pay but the customer keeps the product, this is called 

A.  a sales allowance
B.  a sales return 
C.  an allowance for doubtful accounts 
D.  a sales discount 

Which of the following transactions would NOT result in an entry to the inventory account in the buyer's accounting records under a perpetual inventory system? 

A.  Return of merchandise to the supplier 
B.  Purchase of merchandise on credit 
C.  Payment of a credit purchase of merchandise within the discount period 
D.  Payment of freight by the seller for goods received from a supplier

Which of the following transactions would NOT result in an adjustment to the inventory account under a perpetual inventory system? 

A.  Receipt of payment from a customer within the discount period 
B.  Sale of merchandise on credit 
C.  Return of merchandise by a customer
D.  Sale of merchandise for cash 

When purchase prices are rising, which of the following statements is true? 
A.  LIFO produces a higher cost of goods sold than FIFO. 
B.  FIFO produces a lower amount for net income than LIFO. 
C.  Average cost produces a higher net income than FIFO or LIFO.
D.  LIFO produces a higher cost for ending inventory than FIFO. 

Which method results in a more realistic amount for income because it matches the most current costs against revenue? 

A.  Average cost 
B.  Specific identification 
C.  FIFO 
D.  LIFO

Which of the following statements is true for a company that uses a periodic inventory system? 

A.  Any amounts paid for freight are debited to Inventory.
B.  The return of defective inventory requires a debit to Purchase Returns and Allowances. 
C.  The purchase of inventory requires a debit to Inventory. 
D.  the payment of a purchase within the discount period requires a credit to Purchase Discounts. 

Klump Co. uses a perpetual inventory system and had the following inventory transaction for the month of June: Beginning inventory of 50 units at $18.00 each for a total cost of $900, June 4 purchased 115 units at $18.20 each, June 5 sold 100 units, June 10 purchased 75 units at $18.25 each and on June 24 sold 50 units. What is the Cost of Goods Sold if the company uses FIFO? 

A.  $2,520 
B.  $2,540 
C.  $2,550
D.  $2,538 

Klump Co. uses a perpetual inventory system and had the following inventory transaction for the month of June: Beginning inventory of 50 units at $18.00 each for a total cost of $900, June 4 purchased 115 units at $18.20 each, June 5 sold 100 units, June 10 purchased 75 units at $18.25 each and on June 24 sold 50 units. What is the Cost of Goods Sold if the company uses LIFO? 

A.  $2,538.00 
B.  $2,551.25 
C.  $2,555.00
D.  $2,550.00