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72 Cards in this Set
- Front
- Back
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During the taking of a physical inventory on December 31, inventory was counted as $100,870. The affect of the error on the December 31 balance sheet and income statement will be:
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retained earnings will be understated; cost of merchandise sold will be overstated
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Under the periodic inventory system, Village Fabrics purchases navy plaid fabric used in tis fabric-selling business in the following lots: June5-4 yards at $2.50 per yard. June 12-7 yards at $3.00 per yard, June 17-8 yards at $3.50 per yard. What is the weighted average cost of the fabric per yard?
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$3.11 per yard
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Under the perpetual inventory system, Village Fabrics purchased 25 yards of blue plaid fabric at a cost of $2.00 per yard on June 1; on June 3, 22 yards were sold of the blue plaid; a new shipment came in with 25 more yards at a cost of $2.25 per yard on June 5; on June 15, 17 yards of the blue plaid fabric were sold; Village Fabrics purchased another 25-yard bolt at a cost of $2.50 per yard on June 19; on June 27, 6 more yards were sold. No inventory was on hand at the beginning of the month. What is the cost of merchandise sold and cost of ending inventory under the FIFO method for June?
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$95.00; $73.75
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Under the perpetual inventory system, Village Fabrics purchased 25 yards of blue plaid fabric at a cost of $2.00 per yard on June 1; on June 3, 22 yards were sold of the blue plaid; a new shipment came in with 25 more yards at a cost of $1.25 per yard on June 5; on June 15, 17 yards of the blue plaid fabric were sold; Village Fabrics purchased another 25-yard bolt at a cost of $1.00 per yard on June 19; on June 27, 6 more yards were sold. What is the value of inventory as of June 30 under the FIFO method?
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$31.25
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Under the perpetual inventory system, Village Fabrics purchased 25 yards of blue plaid fabric at a cost of $2.00 per yard on June 1; on June 3, 22 yards were sold of the blue plaid; a new shipment came in with 25 more yards at a cost of $1.25 per yard on June 5; on June 15, 17 yards of the blue plaid fabric were sold; Village Fabrics purchased another 25-yard bolt at a cost of $1.00 per yard on June 19; on June 27, 11 more yards were sold. What is the value of inventory as of June 30 under the LIFO method?
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$30.00
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Under the periodic inventory system, Village Fabrics purchased 25 yards of blue plaid fabric at a cost of $2.00 per yard on June 1; on June 3, 22 yards were sold of the blue plaid; a new shipment came in with 25 more yards at a cost of $1.25 per yard on June 5; on June 15, 17 yards of the blue plaid fabric were sold; Village Fabrics purchased another 25-yard bolt at a cost of $1.00 per yard on June 19; on June 27, 6 more yards were sold. What is the value of inventory as of June 30 under the LIFO method?
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$56.25
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Under the periodic inventory system, Village Fabrics purchased 25 yards of blue plaid fabric at a cost of $2.00 per yard on June 1; on June 3, 22 yards were sold of the blue plaid; a new shipment came in with 25 more yards at a cost of $1.25 per yard on June 5; on June 15, 17 yards of the blue plaid fabric were sold; Village Fabrics purchased another 25-yard bolt at a cost of $1.00 per yard on June 19; on June 27, 6 more yards were sold. What is the value of inventory as of June 30 under the FIFO method?
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$31.25
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Merchandise inventory is usually reported on the balance sheet in the section titled:
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current assets.
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The formula to calculate inventory turnover is:
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Cost of Merchandise Sold/Average Inventory.
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Which of the following is FALSE about the Sarbanes-Oxley Act of 2002?
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Will prevent fraud from occurring.
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Which of the following is NOT an element of internal control?
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Budgeting
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The credit balance in Cash Short and Over at the end of an accounting period is reported as:
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other income on the income statement
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Receipts from cash sales of $1,000 were recorded incorrectly in the cash receipts journal as $10,000. This item would be included on the bank reconciliation as:
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a deduction from the balance per depositor's records.
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A depositor issued a check for $195 in payment of a voucher that was recorded in the journal as $915. This item would be included on the bank reconciliation as a(n):
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addition to the balance per depositor's records.
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A bank makes credit entries into a depositor's account for all of the following EXCEPT:
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service charges.
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A bank reconciliation contains all of the following items EXCEPT:
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stockholders' equity balance at the beginning of the month.
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8 A bank reconciliation is prepared in the following order
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1. Compare each deposit listed on the bank statement with unrecorded deposits appearing in the preceding period's reconciliation and with deposit receipts or other records of deposit.
2. Compare paid checks with outstanding checks appearing on the preceding period's reconciliation and with recorded checks. 3. Compare bank credit memorandums to entries in the journal. 4. Compare bank debit memorandums to entries recording cash payments, and list any errors discovered during the preceding steps. |
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All of the following are procedures used in accounting for a petty cash fund EXCEPT:
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each time monies are paid from petty cash, the custodian requests reimbursement.
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Which of the following is NOT true regarding the presentation of cash on the balance sheet?
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Cash is the most liquid asset, and it is therefore listed first under the property, plant, and equipment section of the balance sheet.
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The analysis that details the items responsible for the difference between the cash balance reported in the bank statement and the balance of the cash account in the ledger
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bank reconciliation
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A summary of all transactions mailed to the depositor or made available online by the bank each month
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bank statement
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Coins, currency (paper money), checks, money orders, and money on deposit that is available for unrestricted withdrawal from banks and other financial institutions.
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Cash
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Highly liquid investments that are usually reported with cash on the balance sheet
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cash equivalents
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An account which has recorded errors in cash sales or errors in making change causing the amount of actual cash on hand to differ from the beginning amount of cash plus the cash sales for the day
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cash short and over account
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A requirement by some banks requiring depositors to maintain minimum cash balances in their bank accounts
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compensating balance
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The overall attitude of management and employees about the importance of controls
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control environment
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A system in which computers rather than paper (money, checks, etc.) are used to effect cash transactions
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electronic funds transfer (EFT)
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The control environment, risk assessment, control activities, information and communication, and monitoring
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elements of internal control
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The intentional act of deceiving an employer for personal gain
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employee fraud
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The policies and procedures used to safeguard assets, ensure accurate business information, and ensure compliance with laws and regulations
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internal controls
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A special cash fund to pay relatively small amounts
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petty cash fund
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An act passed by Congress to restore public confidence and trust in the financial statements of companies
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Sarbanes-Oxley Act of 2002
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A cash fund used for a special business need
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special-purpose fund
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A special form for recording relevant data about a liability and the details of its payment
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voucher
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A set of procedures for authorizing and recording liabilities and cash payments.
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voucher system
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The method of inventory costing that is based on the assumption that costs should be charged against revenue by using the weighted average unit cost of the items sold.
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average inventory cost flow method
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Merchandise that is shipped by manufacturers to retailers who act as the manufacturer’s selling agent.
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consigned inventory
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The name for the retailer in a consigned inventory arrangement.
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consignee
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The name for the manufacturer in a consigned inventory arrangement.
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consignor
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The method of inventory costing based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.
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first-in, first-out (FIFO) inventory cost flow method
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A method of estimating inventory cost that is based on the relationship of gross profit to sales.
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gross profit method
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A ledger containing individual accounts with a common characteristic.
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inventory subsidiary ledger
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The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.
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inventory turnover
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A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue.
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last-in, first-out (LIFO) inventory cost flow method
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A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost).
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lower-of-cost-or-market (LCM) method
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The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions.
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net realizable value
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The relationship between the volume of sales and inventory, computed by dividing the inventory at the end of the year by the average daily cost of goods sold.
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number of days’ sales in inventory
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A detailed listing of merchandise on hand.
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physical inventory
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The purchase order authorizes the purchase of the inventory from an approved vendor.
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purchase order
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The form or electronic transmission used by the receiving personnel to indicate that materials have been received and inspected.
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receiving report
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A method of estimating inventory cost that is based on the relationship of gross profit to sales.
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retail inventory method
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Inventory method in which the unit sold is identified with a specific purchase.
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specific identification inventory cost flow method
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Before inventory purchases are recorded, the receiving report should be reconciled to what documents?
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The receiving report should be reconciled to the intitial purchase order and the vendor's invoice before recording or paying for inventory purchases. This procdure will verify that the inventory received matches the type and quantity of inventory ordered. It also verfies that the vendor's invoice is charging the company for the actual quantity of inventory recieved at the agreed-upon price.
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What security measures may be used by retailers to protect merchandise inventory from customer theft?
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To protect inventory from customer theft, retailers use two-way mirrors, cameras, security guards
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Can a company change its method of costing inventory? Explain
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Yes, the inventory method may be changed for a valid reason. The effect of any change in method and the reason for the change should be full disclosed in the financial statements for the period in which the change occured.
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Which inventory system provides the most effective means of controlling inventories (PErpetual or Periodic) Explain.
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Perpetual. The perpetual inventory system provides the more effective means of controlling inventories, since the inventory account is updated for each purchase and sale. This also assists managers in determining when to reorder inventory items.
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Why is it important to periodically take a physical inventory if the perpetual system is used?
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A physical inventory shoud be taken periodically to test the accuracy of the perpetual records. In addition, a physical inventory will identiful inventory shortages or shrinkage.
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What uses can be made of the estimate of the cost of inventory determined by the gross profit method?
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Inventories estimated by the gross profit method are useful in preparing interim statements and in establishing an estimate of the cost of merchandise destroyed by fire or other disasters.
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Why did Congress pass the Sarbanes- Oxely Act of 2002?
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Congress passed the Sarbanes-Oxely Act of 2002 because of the Enron, Worldcom, Tyco, Adelphia, and other financial scandals of the early 2000s that caused stockholders, creditors, and other investors to lose millions and in some cases billions of dollars.
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What was the purpose of the Sarbanes-Oxley Act of 2002?
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The purpose of Sarbanes-Oxley is to restore public confidence and trust in the financial statements of companies.
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Define internal control
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Internal control is broadly defined as the procedures and processes used by a company to safeguard its assets, process information accurately, and ensure compliance with laws and regulations.
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Name and Describe the five elements of internal control.
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The five elements of internal control are the control environment, risk assessment, control procedures, monitoring, and information and communication. The control environment is the overall attitdue of management and employees about the importance of controls. Risk assessment includes evaluating various risks facing the business, including competitive threats, regulatory changes, and changes in economic factors. Control procedures are established to provide reasonable assurance that business goals will be achieved. Monitoring is the evaluation of the internal control system. Information and communication provide management with feedback about internal control.
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Is any one element of control more than another?
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No. One element of internal control is not more important than another element. All five elements are necessary for effective internal control. The accounting system is an information system because it provides information for managemnt's use in conducting the affairs of the business and in reporting to stockholders, creditors, and other stakeholders. It includes the entire network of communications used by the business.
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Why should the responsibility for sequence of related operations be divided among different persons? Explain.
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The knowledge that job rotation is practiced and that one employee may perform another's job at a later date tends to discourage deviations from prescribed procedures. Also, rotation helps to disclose any irregularities that may occur.
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How are cash equivalents reported in the financial stements?
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Cash and cash equivalents are usually reported as one amount in the Current Assets section of the balance sheet.
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What are some examples of cash equivalents?
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Examples of cash equivalents include certificates of deposit, U.S. government securities, corporate notes and bonds, and commercial paper.
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Why should the employee who handles cash receipts not have the responsibility for maintaining the accounts receivable records? Explain.
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To reduce the possibility of errors and embezzlement, the functions of operations and accounting should be separated. Thus, one employee should not be responsible for handling cash receipts (operations) and maintaining the accounts receivable records (accounting)
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What is the importance of preparing bank reconciliation?
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The purpose of a bank reconciliation is to determine the reasons for the difference between the balance according to the company's records and the balance according to the bank statement and to correct those items representing errors in recording that may have been made by the bank or by the company.
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Oak Grove Inc. has petty cash fund of $1,500. Since the petty cash fund is only $1,500, should Oak Grove implement controls over petty cash?
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Yes. Even though the petty cash fund is only $1,500, if the fund is replenished frequently, a significant amount of cash could be stolen. for example, if the fund is replenished weekly, then $78,000 ($1,500 X 52 weeks) could be subject to theft.
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What controls, if any should be used for petty cash?
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Controls for petty cash include (1) designating one person who is responsible for the fund, (2) maintaining a written record of all payments, (3) requiring support (reciepts) for payments from the fund, and (4) periodic review of the funds on hand and the payments by an independent person.
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How are cash equivalents reported in the financial statements?
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Cash and cash equivalents are usually reported as one amount in the Current Assets section of the balance sheet
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What are some examples of cash equvalents?
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Examples of cash equivalents include certificates of deposit, U.S. government securities, corporate notes and bonds, and commercial paper.
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