Introduction to Financial Accounting
Multiple Choice question -Problems -Essay Questions
1. Which of the following is not one of the main factors that contribute to fraudulent activity?
a) Incompatible duties.
b) Rationalization.
c) Financial pressure.
d) Opportunity.
2. Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them
a) increases the potential for errors and fraud.
b) is an example of good internal control.
c) is a good example of safeguarding the company's assets.
d) decreases the potential for errors and fraud.
3. The interest on a $10,000, 6%, 60-day note receivable is a) $680.
b) $100.
c) $300.
d) $200.
4. Windsor Corporation sells its goods on terms of 2/10, n/30. It has an accounts receivable turnover of 8. What is its average collection period (days)?
a) 36
b) 30
c) 46
d) 80
5. Carson Company on July 15 sells merchandise on account to Tayler Co. for $2,000, terms 2/10, n/30. On July 20 Tayler Co. returns merchandise worth $800 to Carson Company. On July 24 payment is received from Tayler Co. for the balance due. What is the amount of cash received?
a) $1,160 b) $1,200 c) $1,176 d) $2,000
6. Depreciation is a process of
a) cost allocation.
b) asset devaluation.
c) asset valuation.
d) cost accumulation.
7. On November 1, 2013, Love Company places a new asset into service. The cost of the asset is $45,000 with an estimated 5-year life and $5,000 salvage value at the end of its useful life. What is the depreciation expense for 2014 if Love Company uses the straight-line method of depreciation?
a) $1,333.
b) $8,000.
c) $4,500.
d) $2,000.
8. Jack's Copy Shop bought equipment for $150,000 on January 1, 2013. Jack estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2014, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2014?
a) $20,000. b) $25,000. c) $37,500. d) $50,000.
9. Which one of the following items is not considered a part of the cost of a truck purchased for business use?
a) Cost of lettering on side of truck.
b) Sales tax.
c) Freight charges.
d) Truck license.
10. 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, mechanical, and electronic controls.
d) documentation procedures
Prob 1. The following information pertains to Joyce Company.
1. Cash balance per bank, July 31, $7,573.
2. July bank service charge not recorded by the depositor $49.
3. Cash balance per books, July 31, $7,609.
4. Deposits in transit, July 31, $2,945.
5. Note for $2,245 collected for Joyce Company in July by the bank, plus interest $47 less fee $31. The collection has not been recorded by Joyce Company, and no interest has been accrued.
6. Outstanding checks, July 31, $697.
Prepare a Bank Reconciliation:
Prob 2. Wang Co. has delivery equipment that cost $54,300 and has been depreciated $23,910. Record the entries assuming the equipment is sold for $36,260.
Accounts used: Cash / Accumulated Depreciation / Equipment / Gain on Disposal of Equipment
Prob 3. Malone Supply Co. has the following transactions related to notes receivable during the last 2 months of the year. The company does not make entries to accrue interest except at December 31.
1. Nov. 1 Loaned $64,200 cash to B. Carr on a 12-month, 9% note.
2. Dec. 11 Sold goods to R. P. Kiner, Inc., receiving a $3,600, 90-day, 9% note.
3. Dec. 16 Received a $13,400, 180-day, 9% note to settle an open account from M. Adcock.
4. Dec. 31 Accrued interest revenue on all notes receivable.
Journalize the transactions for Malone Supply Co:
Q1. Contrast the effects of the three depreciation methods on annual depreciation expense.
Q2. What are the essential features of the allowance method of accounting for bad debts?
Q3. Identify and briefly describe the five components of a good internal control system.
Q4. Discuss how the Sarbanes-Oxley Act has increased the importance of internal control to top managers of a company.