Chapter 4
Occupational Fraud:
A. Occurs in only a few organizations and generally involves minor amounts.
B. Will be prevented when companies employ an auditor
C. Is the use of ones occupation for personal enrichment through the deliberate misuse or misapplication of the employers resources.
D. Is committed only by lower-level employees
C. is the use of ones occupation for personal enrichment through the deliberate misuse or misapplication of the employers resources.
Which of the following best describes credit sales?
A. Cash sales to customers that are new to the company
B. Sales to customers using credit cards
C. Sales with a high risk that the customer will return the product
D. Sales to customers on account
D. Sales to customers on account
Merchandising companies purchase inventories that are primarily in finished form for resale to customers.
TRUE/FALSE
TRUE
The cost of inventory sold during the current year is classified as a(n) ____ in the____
A. Revenue: Income Statement
B. Liability: Balance Sheet
C. Asset: Balance Sheet
D. Expense: Income Statement
D. Expense: Income Statement
Which element of the fraud triangle do companies have the greatest ability to eliminate?
A. Rationalization
B. Motivation
C. Opportunity
D. Intelligence
C. Opportunity
A company provides services on account. How will this transaction affect (1) assets; (2) Stockholders equity; (3) revenues?
A. (1) increase; (2) Increase; (3) Increase
B. (1) increase; (2) No effect; (3) Increase
C. (1)No effect; (2) Increase; (3) Increase
D. A. (1) No effect; (2) No effect; (3) No effect
A. (1) increase; (2) Increase; (3) Increase
Companies that purchase inventories that are primarily in finished form for resale to customers are known as:
A. Service companies
B. Delivering Companies
C. Manufacturing Companies
D. Merchandising Companies
D. Merchandising Companies
Beginning Inventory is $30,000. Purchases of invenotry during the year are $50,000. Cost of goods sold is $60,000. What is ending inventory?
A. $20,000
B. $50,000
C. $10,000
D. $30,000
$20,000
$30,000 - $50,000 - $60,000 = $20,000
Which of the following does not represent a major provision of the Sarbanes-Oxley Act?
A. Corporate executive accountability
B. Quarterly financial statements
C. Auditor rotation
D. Non-audit services
B. Quarterly Financial Statements
The amount owed to a company by its customers from the sale of goods or services on account is commonly referred to as:
A. Accounts receivable
B. Accounts Payable
C. Revenue
D. Cash
A. Accounts Receivable
The cost of unsold inventory at the end of the year is classified as a(n) _____ in the _____.
A. Revenue; Income Statement
B. Liability; Balance Sheet
C. Expense; Income Statement
D. Asset; Balance Sheet
D. Asset; Balance Sheet
When customers purchase goods on account, Spitz Manufacturing offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a:
A. Bad debt
B. Sales Discount
C. Sales Return
D. Sales Allowance
B. Sales Discount
Under the provisions of the Sarbanes-Oxley Act. auditors must do which of the following?
A. Maintain working papers for at least seven years following an audit
B. Audit public companies whose chief executives worked for the audit firm in the preceding year
C. Be hired by company management
D. Provide non-audit services for their clients.
A. Maintain working papers for at least seven years following an audit
What is the likely advantage of extending credit to customers?
A. Reduced amounts owed to creditors
B. Increased sales
C. Lower accounts receivable
D. Fewer Expenses
B. Increase Sales
A manufacturers inventory consists of what type of inventory?
A. Raw materials
B. Finished Goods
C. Work-In-Process
D. All of the other answers are included in a manufacturers inventory
D. All of the other answers are included in a manufacturers inventory
A trade discount results in:
A. Revenue being recorded for the discounted price
B. A contra asset being recorded
C. A contra revenue account being recorded
D. Customers delaying cash payment
A. Revenue being recorded for the discounted price
A framework for designing an internal control system is provided by the:
A. Securities and Exchange Commission
B. Financial Accounting Standards Board
C. Committee of Sponsoring Organizations
D. International Accounting Standards Board
C. Committee of Sponsoring Organizations
A trade discount results in:
A. Customers delayed cash payments
B. A contra revenue account being recorded
C. Revenue being recorded for the discounted price
D. A contra asset being recorded
C. Revenue being recorded for the discounted price
Cost of Goods Sold is a(n):
A. Expense account
B. Revenue account
C. Permanent equity account
D. Asset account
A. Expense account
The components of internal control do not directly include:
A. Risk assessment
B. Control activities
C. Inflation adjustment
D. Monitoring
C. Inflation Adjustment