Chapter 4
A weak internal control system is which element in the fraud triangle?
A.Motive
B.Attitude
C.Opportunity
D.Rationalization
C.Opportunity
•Motive: why?
•Rationalization: reasoning behind motive
•Opportunity: weak internal control that allows fraud
A doctor for the Sentovich Family Practice performs a sports physical exam for Liz Hardy on September 1. The charge for the exam is $100; Hardy's insurance company, Cardinal Health, is billed for the entire $100 on September 1. Cardinal Health receives the invoice on September 2 and enters the amount into its payment system on September 4. Sentovich Family Practice receives the $100 payment from Cardinal Health on September 20. On which date would Sentovich Family Practice recognize the revenue for Hardy's physical?
A.September 1
B.September 4
C.September 2
D.September 20
A.September 1
•When is revenue recognized:
When an organization transfers goods (delivered) and services (performed)
Software began January with $ 3,300 of merchandise inventory. During January, Waterside made the following entries for its inventory transactions:
Inventory 6,200
Accounts Payable 6,200
Accounts Receivable 7,100
Sales Revenue 7,100
Cost of Goods Sold 5,400
Inventory 5,400
How much was Waterside's inventory at the end of January? What was the gross profit? (500 BONUS POINTS FOR GROSS PROFIT %)
EI: GP:
A. $ 9,500 $700
B. $ 4,100 $1,700
C. $ 6,200 $2,700
D. $ 0 $500
B. $ 4,100 $1,700
GP%= GP/ SALES
GP= 1700/7100= .2394= 24%
Each of the following represents an internal control procedure except for:
A.Separation of duties
B.Clear lines of authority and communication
C.Compliance monitoring
D.Limited access to both assets and record
B.Clear lines of authority and communication
Fairmont Company has shipped goods to Willowbrook Recreation FOB shipping point. Fairmont will recognize sales revenue when
A.The customer has paid the invoice
B.Willowbrook has received the goods
C.Fairmont and Willowbrook agree that the revenue should be recognized
D.The goods leave Fairmont’s shipping dock
D.The goods leave Fairmont’s shipping dock
Fictitious accounting entries are recorded that cause revenue to be overstated by $5million for the year; the accounting manager was trying to make the company’s income look better n the company’s upcoming loan application. This type of fraud is:
A.Asset misappropriation
B.GAAP disordering
C.Fraudulent financial reporting
D.IFRS misalignment
C.Fraudulent financial reporting
Asset misappropriation= employees
On July 15, Gunderson Company sold and shipped merchandise on account for $6,000 to a customer, terms FOB shipping point, n/30. Gunderson's cost of goods sold is 40% of sales. How is Gunderson impacted by this sale on July 15?
A.Its assets will increase, as will its equity
B.Its assets will increase, while its equity remains the same
C.Its assets will remain the same, while its equity decreases
D.Its assets will remain the same, while its equity increases
A.Its assets will increase, as will its equity
How is cost of goods sold classified in the financial statements?
A. As an expense
B. As a liability
C. As an asset
D. As a revenue
A. As an expense
Having a corporate code of ethics that prohibits employees from accepting gifts from customers or vendors is an example of which component of internal control?
A.Control environment
B.Information system
C.Control procedures
D.Risk assessment
A.Control environment
Nordaville Corporation offers credit terms of 3/10, n/45. Which of the following statements is correct?
A. The total amount of the invoice must be paid within 10 days of the invoice date.
B. The customer can take a 3% discount if the bill is paid within 45 days of the invoice date.
C. No discount is offered for early payment.
D. A discount of 3% can be taken if the invoice is paid within 10 days of the invoice date.
D. A discount of 3% can be taken if the invoice is paid within 10 days of the invoice date.
The Cash account of Regard Corporation had a balance of $3,530 on August 31, 2021. Included were outstanding checks totaling $1,800 and an August 31 deposit of $400 that did not appear on the bank statement. The bank statement, which came from Turkay State Bank, listed an August 31 balance of $5,438. Included in the bank balance was an August 30 collection of $552 on account from a customer who pays the bank directly. The bank statement also showed a $12 service charge, $8 of interest revenue that Regard earned on its bank balance, and an NSF check for $40.Prepare a bank reconciliation to determine how much cash Regard had at August 31.
A. 4070
B. 6578
C. 4038
D. 5038
C. 4038
Green Cove Legal Association performs legal services for Ritter Construction for $4500 on account with credit terms of 2/10, n/30. If Ritter pays the invoice within the discount period, Green COVE WILL RECORD A DEBIT TO Cash in the amount of (200 bonus points if you can list the journal entry)
A. $4590
B. $90
C. $4410
D. $4500
C. $4410
Dr Cash 4410
Dr Sales Discount (Contra-revenue account) 90
Cr A/R 4500
What is Sunny's cost of goods sold and ending inventory using the average-cost method?
Units Unit Cost TC
Beginning Inventory: 15 $110 $1650
Purchase on 06/03: 35 $130 $ 4550
Sales: 40 $? $?
COGS: EI:
A. $6,200 $4,400
B. $4,400 $6,200
C. $4,960 $1,240
D. $1,240 $4,960
COGS: EI:
C. $4,960 $1,240
On July 15, Gunderson Company sold and shipped merchandise on account for $6,000 to a customer, terms FOB shipping point, n/30. Gunderson's cost of goods sold is 40% of sales. What is Gunderson's journal entry on July 15?
DR A/R
CR Service Revenue
Venus Corporation received a four-month 9%, $2,800 note receivable on March 1. The adjusting entry on March 31 will include
A.A credit to Interest Revenue for $21
B.A debit to Interest Receivable for $84
C.A debit to Cash for $252
A debit to Interest Receivable for $252
A.A credit to Interest Revenue for $21
A journal entry would need to be made for which of the following adjustments on a bank reconciliation?
Maplewood Corporation began this year with a balance in Accounts Receivable of $580,000. Service revenue, all on account, for this year totaled $1,600,000. The company ended the year with a balance in Accounts Receivable of $525,000. Maplewood's bad-debt write-offs are nonexistent. How much cash did the company collect from customers during the year? (200 bonus points for Journal Entry)
A.$1,545,000
B.$1,655,000
C.$1,600,000
D.$2,125,000
B.$1,655,000
Dr $
CR A/R
What is Sunny's cost of goods sold and ending inventory using the FIFO method?
Units Unit Cost TC
Beginning Inventory: 18 $130 $2340
Purchase on 06/03: 43 $140 $6020
Sales: 50 $? $?
COGS: EI:
A. $6,820 $1,540
B. $1,540 $6,820
C. $4,670 $1,250
D. $1,640 $4,960
COGS: EI:
A. $6,820 $1,540
What is the financial impact on a company when a customer returns a product for a refund?
A. Sales revenue will not be impacted because the company has already accrued for estimated refunds and returns.
B. Sales revenue will increase because sales revenue will be credited.
C. Returns expense will increase because returns expense will be debited.
D. Sales revenue will decrease because sales revenue will be debited.
A. Sales revenue will not be impacted because the company has already accrued for estimated refunds and returns.
In a period of rising prices,
A. LIFO inventory will be greater than FIFO inventory
B. gross profit under FIFO will be higher than under LIFO
C. FIFO inventory will be greater than LIFO inventory
d. COST of goods sold under LIFO will be less than under FIFO
B. gross profit under FIFO will be higher than under LIFO
FIFO! Why? Because FIFO makes you subtract the cost of your oldest (the least expensive) inventory from sales thus your gross income is higher
If a bank reconciliation included a deposit in transit of $790, the entry to record this reconciling item would include a
Under the allowance method for uncollectible receivables, the entry to record uncollectible-account expense has what effect on the financial statements? (What is the journal entry?)
A.Decreases assets and has no effect on net income
B.Decreases stockholders' equity and increases liabilities
C.Increases expenses and increases stockholders' equity
D.Decreases net income and decreases assets
D.Decreases net income and decreases assets
DR Uncollectible Acct Expense
CR Allowance of Uncollectible Accts (Contra-asset)
What is Sunny's cost of goods sold and ending inventory using the LIFO method?
Units Unit Cost TC
Beginning Inventory: 22 $115 $2530
Purchase on 06/03: 45 $130 $5850
Sales: 60 $? $?
COGS: EI:
A. $1,250 $4,670
B. $805 $7,575
C. $4,670 $1,250
D. $7,575 $805
COGS: EI:
D. $7,575 $805
Graham Company uses the percent-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $120,000, and management estimates 3% will be uncollectible. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $1,000. The amount of expense to report on the income statement will be
A.$3600
B.$4600
C.$500
D.$7200
A.$3600