Suffolk County Community College AC11 – Prof. R. Rovegno 1. Internal controls are concerned with a. b. c. d.

only manual systems of accounting. the extent of government regulations. safeguarding assets. preparing income tax returns. Quiz #4 F’06 8. Physical controls to safeguard assets do not include a. b. c. d. cashier department supervisors. vaults. employee identification badges. security guards.

2. Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of a. b. c. d. inadequate internal control. duplication of effort. external verification. segregation of duties.

9. The counting of cash register receipts made by department supervisors is an example of a. b. c. d. other controls. independent internal verification. establishment of responsibility. segregation of duties.

10. A voucher system is a series of prescribed control procedures a. to check the credit worthiness of customers. b. designed to assure that disbursements by check are proper. c. which eliminates the need for a journal. d. specifically designed for small firms who may not have checking accounts. 11. A petty cash fund is generally established in order to a. pay for all merchandise purchased on account. b. pay employees’ wages. c. make loans internally to employees. d. pay relatively small expenditures. 12. A check returned by the bank marked "NSF" means a. b. c. d. no service fee. no signature found. not satisfactorily filled-out. not sufficient funds.

3. From an internal control standpoint, the asset most susceptible to improper diversion and use is a. b. c. d. prepaid insurance. cash. buildings. land.

4. Internal auditors a. are hired by CPA firms to audit businesses. b. are employees of the IRS c. evaluate the system of internal controls for the companies that employ them. d. cannot evaluate the system of internal controls of the company that employs them because they are not independent. 5. Two individuals at a retail store work the same cash register. You evaluate this situation as a. b. c. d. a violation of establishment of responsibility. a violation of separation of duties. supporting establishment of responsibility. supporting internal independent verification.

13. A bank reconciliation should be prepared a. whenever the bank refuses to lend the company money. b. when an employee is suspected of fraud. c. to explain any difference between the depositor's balance per books with the balance per bank. d. by the person who is authorized to sign checks.

6. Related selling activities do not include a. b. c. d. ordering the merchandise. making a sale. shipping the goods. billing the customer.

7. Related buying activities include a. b. c. d. ordering, receiving, paying. ordering, selling, paying. ordering, shipping, billing. selling, shipping, paying.

14. A bank statement

a. lets a depositor know the financial position of the bank as of a certain date. b. is a credit reference letter written by the depositor's bank. c. is a bill from the bank for services rendered. d. shows the activity which increased or decreased the depositor's account balance. 15. Deposits in transit

20. If Allow. for D/A. has a credit balance of $1,100 at the end of the year (before adjustment), and an Aging of A/R shows doubtful accounts of $12,900, which of the following adjustments is correct? a. b. Bad Debts Expense 1,100 Allow. for Doubtful Accts. 1,100 Bad Debts Expense 12,900 Allow. for Doubtful Accts. 12,900 Bad Debts Expense 11,800 Allow. for Doubtful Accts. 11,800 11,800

a. have been recorded on the company's books but not yet by the bank. b. have been recorded by the bank but not yet by the company. c. have not been recorded by the bank or the company. d. are checks from customers which have not yet been received by the company. 16. In preparing a bank reconciliation, outstanding checks are a. b. c. d. 17. added to the balance per bank. deducted from the balance per books. added to the balance per books. deducted from the balance per bank.

c.

d. Allow. for Doubtful Accts. 11,800 Bad Debts Expense

21. If Allow. for D/A has a debit balance of $400 at the end of the year (before adjustment), and the estimated doubtful accounts is 1% of credit sales of $200,000, then the amount of the adjusting entry would be a. b. c. d. $400 $1,600 $2,400 $2,000

If a check correctly written and paid by the bank for $448 is incorrectly recorded on the company's books for $484, the appropriate treatment on the bank reconciliation would be to a. b. c. d. add $36 to the bank's balance. add $36 to the book's balance. deduct $36 from the bank's balance. deduct $448 from the book's balance.

22. After adjusting & closing entries have been posted, the A/R account has a balance of $575,000 & the Allowance account has a balance of $25,000. What is the Net A/R? a. b. c. d. $550,000 $25,000 $600,000 $575,000

18. An adjusting entry is not required for a. b. c. d. outstanding checks. collection of a note by the bank. NSF checks. bank service charges.

23. The Allowance Method attempts to satisfy which of the following accounting principles a. b. c. d. Matching Consistency Conservatism All of the above

19. Two methods of estimating uncollectible A/R are the "Analysis (Aging) of A/R Method" and the a. b. c. d. Direct Write-Off % of Sales Method % of Completion Installment Method

24. If a company fails to record estimated bad debts expense, a. b. c. d. cash realizable value is understated. expenses are understated. revenues are understated. receivables are understated.

25. When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when a. a sale is made. b. an account becomes bad and is written off. c. management estimates the amount of uncollectibles. d. a customer's account becomes past-due. 26. When an account becomes uncollectible and must be written off, a. Allowance for Doubtful Accounts should be credited. b. Accounts Receivable should be credited. c. Bad Debts Expense should be credited. d. Sales should be debited. 27. Bad Debts Expense is considered a. an avoidable cost in doing business on a credit basis. b. an internal control weakness. c. a necessary risk of doing business on a credit basis. d. avoidable unless there is a recession.

31. When the allowance method of accounting for uncollectible A/R is used, Bad Debt Exp. is recorded a. b. c. d. in the year after the credit sale is made. in the same year as the credit sale. as each credit sale is made. when an account is written off uncollectible.

as

32. To record estimated bad debts expense using the allowance method, the adjusting entry would be a a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts. b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts. c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. d. debit to Loss on Credit Sales and a credit to Accounts Receivable. 33. Allowance for Doubtful Accounts on the balance sheet a. is offset against total current assets. b. increases the cash realizable value of accounts receivable. c. appears under the heading "Other Assets." d. is offset against accounts receivable. 34. If an account is collected after having been previously written off, a. the allowance account should be debited. b. only the control account needs to be credited. c. both income statement and balance sheet accounts will be affected. d. the A/R must be reinstated & then shown as collected. 35. Lane Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Lane Company make to record the bad debts expense? a. Bad Debts Expense 25,000 Allowance for D/A 25,000 b. Bad Debts Expense 20,000 Allowance for D/A 20,000 c. Bad Debts Expense 20,000

28. The best managed companies will have a. b. c. d. no uncollectible accounts. a very strict credit policy. a very lenient credit policy. some accounts that will prove to be uncollectible. accounting for uncollectible

29. Two methods of accounts are the

a. allowance method and the accrual method. b. allowance method and the net realizable method. c. direct write-off method and the accrual method. d. direct write-off method and the allowance method. 30. Bad Debts Expense is reported on the income statement as a. b. c. d. part of cost of goods sold. reducing gross profit. an operating expense. a contra-revenue account.

Accounts Receivable 20,000 d. Bad Debts Expense 25,000 Accounts Receivable 25,000

b. August 9. c. August 10. d. August 12.

36. What is the due date & maturity value of a 90-day, 9% note for $10,000 dated August 3? a. b. c. d. Oct. 31; $10,225 Nov. 1; $10,225 Oct. 31; $10,900 Nov. 1; $10,900 43. A promissory note a. is not a formal credit instrument. b. may be used to settle an accounts receivable. c. has the party to whom the money is due as the maker. d. cannot be factored to another party. 44. The two key parties to a promissory note are the a. b. c. d. maker and a bank. debtor and the payee. maker and the payee. sender and the receiver.

37. A promissory note that is not paid off on the due date is said to be a. b. c. d. Uncollectible Dishonored Honored Written off

38. The party that has a note receivable is referred to as all of the following except a. b. c. d. Maker Holder Payee Endorser

45. The interest on a $4,000, 10%, 1-year note receivable is a. b. c. d. $4,000. $400. $4,040. $4,400.

39. If a note receivable is not collected on the due date it reverts back to being a a. b. c. d. Debt Long term note Check Account Receivable

46. The face value of a note refers to the amount a. that can be received if sold to a factor. b. borrowed plus interest received at maturity from the maker. c. that is identified as the principal amount d. remaining after a service charge has been deducted. 47. Tresh Company receives a $6,000, 3-month, 12% promissory note from Carr Company in settlement of an open accounts receivable. What entry will Tresh Company make upon receiving the note? a. N/R-Carr A/R—Carr 6,180 6,180 6,000 6,000

40. A 60-day note receivable dated April 13 has a maturity date of a. b. c. d. June 13. June 12. June 11. June 10.

41. The maturity value of a $30,000, 10%, 60-day note receivable dated July 3 is a. b. c. d. 42. $30,000. $33,000. $35,000. $30,500.

b. N/R-Carr
c.

A/R—Carr

A 90-day note dated May 11 has a maturity date of a. August 11.

N/R-Carr 6,000 Interest Receivable 180 A/R—Carr 6,180 6,180 N/R—Carr 6,000

d. Cash

Interest Revenue

180

48. Tresh Company receives a $6,000, 3-month, 12% promissory note from Carr Company in settlement of an open accounts receivable. What entry will Tresh Company make upon the collection of the note on the due date? a. N/R-Carr A/R—Carr 6,180 6,180 6,000 6,000

b. N/R-Carr
c.

A/R—Carr

N/R-Carr 6,000 Interest Receivable 180 A/R—Carr 6,180 6,180 N/R—Carr 6,000 Interest Revenue 180

d. Cash

49. Tresh Company receives a $6,000, 3-month, 12% promissory note from Carr Company in settlement of an open accounts receivable. What entry will Tresh Company make on the due date if the note is dishonored? a. N/R-Carr A/R—Carr 6,180 6,180 6,000 6,000

b. N/R-Carr
c.

A/R—Carr

N/R-Carr 6,000 Interest Receivable 180 A/R—Carr 6,180

d. A/R-Carr 6,180 N/R—Carr 6,000 Interest Revenue 180 50. A promissory note that is paid off on the due date is said to be a. b. c. d. Uncollectible Dishonored Honored Written off

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