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business
financial accounting 11th edition
Questions and Answers of
Financial Accounting 11th Edition
Oak Corp. had sales during the year of$10,000,000 and an average accounts receivable of $2,000,000. Its accounts receivable turnover ratio isa. 5 times.b. 0.2 times.c. 10 times.d. none of the above.
Maple Corp. borrows $10,000 at a local bank.Maple will recognize the following accounts:a. notes payable and interest revenueb. notes receivable and interest revenuec. notes payable and interest
Elm Inc. borrows $50,000 on a 120-day, 12% promissory note. The total interest that Elm will repay at maturity isa. $500.b. $2,000.c. $6,000.d. none of the above.
Boston makes $20,000 of credit card sales during the week and is charged 5% by the credit card company. Boston will record sales revenue ofa. $10,000.b. $19,000.c. $20,000.d. none of the above.
When a company discounts a promissory note at the banka. it receives cash later than it would if it held the note to maturity.b. it receives cash sooner than it would if it held the note to
A company invests excess cash in a certificate of deposit. At the end of an accounting period before the CD matures, the company will recognizea. interest expense.b. interest revenue.c. the receipt
Baxter pays $15,000 to buy stock in another company and an additional $400 in commissions.Three months later Baxter sells the stock for $16,000. At the time of sale, Baxter will recognize aa. gain of
How should an increase in accounts receivable be reported on the statement of cash flows using the indirect method?a. as an additionb. as a deductionc. It depends on the amount of the increase.d.
How should a decrease in notes receivable be reported on the statement of cash flows using the indirect method?a. as an additionb. as a deductionc. It depends on the amount of the increase.d. Changes
Securities issued by corporations as a form of ownership in the business. True/False
Securities issued by corporations and governmental bodies as a form of borrowing. True/False
A method of estimating bad debts on the basis of either the net credit sales of the period or the accounts receivable at the end of the period. True/False
The party that will receive the money from a promissory note at some future date. True/False
Awritten promise to repay a definite sum of money on demand or at a fixed or determinable date in the future. True/False
A liability resulting from the signing of a promissory note. True/False
A multiple-copy document used by a company that accepts a credit card for a sale. True/False
An asset resulting from the acceptance of a promissory note from another company. True/False
The process of selling a promissory note. True/False
The party that agrees to repay the money for a promissory note at some future date. True/False
A form used to categorize the various individual accounts receivable according to the length of time each has been outstanding. True/False
The detail for a number of individual items that collectively make up a single general ledger account. True/False
The recognition of bad debts expense at the point an account is written off as uncollectible. True/False
The general ledger account that is supported by a subsidiary ledger. True/False
The difference between the principal amount of the note and its maturity value. True/False
The amount of cash received, or the fair value of the products or services received, by the maker when a promissory note is issued. True/False
The amount of cash the maker is to pay the payee on the maturity date of the note. True/False
The length of time a note is outstanding, that is, the period of time between the date it is issued and the date it matures. True/False
The date the promissory note is due. True/False
A contra-asset account used to reduce accounts receivable to its net realizable value. True/False
A receivable arising from the sale of goods or services with a verbal promise to pay. True/False
Brown Corp. ended the year with balances in Accounts Receivable of $60,000 and in Allowance for Doubtful Accounts of $800 (credit balance before adjustment). Net sales for the year amounted to
Indicate whether each of the following events will result in an increase (I), will result in a decrease(D), or will have no effect (NE) on net income for the period.a. Stock hold as an investment is
The following items pertain to the current assets section of the balance sheet for Jackson Corp. at the end of its accounting year, December 31, 2008. Each item must be considered and any necessary
Internal Control Procedures The loan department in a bank is subject to regulation. Internal auditors work for the bank to ensure that the loan department complies with requirements. The internal
The Design of Internal Control Documents Tiger’s Group is a newly formed company that produces and sells children’s movies about an imaginary character. The movies are in such great demand that
Cash and Liquid Assets on the Balance Sheet The following accounts are listed in a company’s general ledger:Required 1. Which items are cash equivalents?2. Explain where items that are not cash
Internal Control Abbott Inc. is expanding and needs to hire more personnel in the accounting office. Barbara Barker, the chief accounting clerk, knew that her cousin Cheryl was looking for a job.
Comparing Two Companies in the Same Industry: Kellogg’s and General Mills Refer to the financial information for Kellogg’s and General Mills reproduced at the end of this book.Required:1. What is
Reading and Interpreting IBM’s Report of Management IBM’s 2006 annual report includes the following selected paragraphs from its Report of Management found on page 54:IBM maintains an effective
Liquidity R Montague and J Capulet distribute films to movie theaters. Following are the current assets for each distributor at the end of the year. (All amounts are in millions of dollars.)Required
Cash Receipts in a Bookstore You were recently hired by a large retail bookstore chain. Your training involved spending a week at the largest and most profitable store in the district. The store
Identify and describe the various forms of cash reported on a balance sheet.
Show that you understand various techniques that companies use to control cash.
Explain the importance of internal control to a business and the significance of the Sarbanes-Oxley Act of 2002.
Describe the basic internal control procedures.
Describe the various documents used in recording purchases and their role in controlling cash disbursements.
What are some of the techniques that companies use to control cash? (See pp. 299–306.)
Why is it essential for a company to maintain an effective internal control system? What are some of the basic procedures that help make a system effective?(See pp. 307–313.)
How can the use of business documents add to the effectiveness of an internal control system? (See pp.314–321.)
Which of the following items should not be included in cash on the balance sheet?a. coin and currency on handb. customer’s undeposited checkc. money market accountd. All of the above should be
A cash equivalent isa. an investment in the stock of another company that can be sold on demand.b. an investment that is readily convertible to a known amount of cash and has an original maturity to
Which of the following is not an addition to the balance per the books on a bank reconciliation that adjusts both the bank statement and balance per the books to the adjusted balance?a. interest
Which of the following is the correct entry when a petty cash fund is established?a. Cash is debited, and Petty Cash Fund is credited.b. Petty Cash Fund is debited, and Cash is credited.c. Expense
What is the five-member body created by the Sarbanes-Oxley Act that was given authority to set auditing standards in the United States?a. Securities and Exchange Commissionb. Financial Accounting
The composition of a company’s audit committeea. must consist of a majority of directors who are key officers of the company.b. must consist of a majority of directors who are outsiders.c. must
Refer to Exhibit 6-5 for Management’s Annual Report on Internal Control Over Financial Reporting for Sears Holdings. Where in this report does management discuss limitations on internal
Controls that a company establishes to safeguard assets and ensure the reliability of the financial statements are calleda. administrative controls.b. accounting controls.c. fiscal controls.d. none
The group within an organization that is responsible for monitoring and evaluating the internal control system is called thea. internal audit staff.b. accounting staff.c. board of directors.d. audit
The form sent by the seller to the buyer as evidence of a sale is called a(n)a. purchase requisition form.b. purchase order.c. invoice.d. invoice approval form.
Which of the following departments in an organization is responsible for preparing the invoice approval form to document all of the information about a particular purchase?a. the department making a
The form sent by the seller to the buyer as evidence of a sale. True/False
The group composed of key officers of a corporation and outside members responsible for the general oversight of the affairs of the entity. True/False
Policies and procedures necessary to ensure the safeguarding of an entity’s assets, the reliability of its accounting records, and the accomplishment of overall company objectives. True/False
Procedures concerned with safeguarding the assets or the reliability of the financial statements. True/False
The form a department uses to initiate a request to order merchandise. True/False
A form the accounting department uses before making payment to document the accuracy of all information about a purchase. True/False
A form used by the accountant to reconcile or resolve any differences between the balance shown on the bank statement for a particular account with the balance shown in the accounting records.
An investment that is readily convertible to a known amount of cash and has an original maturity to the investor of three months or less. True/False
Deductions on a bank statement for items such as NSF checks and various service charges. True/False
A check written by a company but not yet presented to the bank for payment. True/False
A detailed list, prepared by the bank, of all activity for a particular account during the month. True/False
A report required by Section 404 of SOX to be included in a company’s annual report in which management assesses the effectiveness of the internal control structure. True/False
A deposit recorded on the books but not yet reflected on the bank statement. True/False
The methods and records used to accurately report an entity’s transactions and to maintain accountability for its assets and liabilities. True/False
Additions on a bank statement for such items as interest paid on the account and notes collected by the bank. True/False
The board of directors subset that acts as a direct contact between the stockholders and the independent accounting firm. True/False
Money kept on hand for making minor disbursements in coin and currency rather than by writing checks. True/False
The five-member body created by the Sarbanes-Oxley Act that was given the authority to set auditing standards in the United States. True/False
A form used by the receiving department to account for the quantity and condition of merchandise received from a supplier. True/False
Procedures concerned with efficient operation of the business and adherence to managerial policies. True/False
The form sent by the purchasing department to the supplier. True/False
An act of Congress in 2002 intended to bring reform to corporate accountability and stewardship in the wake of a number of major corporate scandals. True/False
The department responsible for monitoring and evaluating the internal control system. True/False
The following information is available for McCarthy Corp. on June 30, 2008:a. The balance in cash as reported on the June 30, 2008, bank statement is $5,654.98.b. McCarthy made a deposit of $865 on
composition of Cash For the following items, indicate whether each should be included (I) or excluded (E) from the line item titled Cash and cash equivalents on the balance sheet.1.Certificate of
Internal Control List the internal control procedures discussed in the text.
What is a cash equivalent? Why is it included with cash on the balance sheet? (Lo 8) 123
Why does the purchase of an item classified as a cash equivalent not appear on the statement of cash flows as an investing activity? (Lo 8) 123
A friend says to you: “I understand why it is important to deposit all receipts intact and not keep coin and currency sitting around the business. Beyond this control feature, however, I believe
A friend says to you: “I’m confused. I have a memo included with my bank statement indicating a $20 service charge for printing new checks. If the bank is deducting this amount from my account,
Different formats for bank reconciliations are possible.What is the format for a bank reconciliation in which a service charge for a lockbox is added to the balance per the bank statement? Explain
What circumstances led to the passage of the Sarbanes-Oxley Act in 2002? (Lo 8) 123
What is the typical composition of a board of directors of a publicly held corporation? (Lo 8) 123
An order clerk fills out a purchase requisition for an expensive item of inventory and the receiving report when the merchandise arrives. The clerk takes the inventory home, then sends the invoice to
What are some of the limitations on a company’s effective system of internal control? (Lo 8) 123
What two basic procedures are essential to an effective system of internal control over cash? (Lo 8) 123
How would you evaluate the following statement? The only reason a company positions its cash register so that customers can see the display is so customers feel comfortable knowing they are being
Which document, a purchase order or an invoice, is the basis for recording a purchase and a corresponding liability?Explain your answer. (Lo 8) 123
What is a blind receiving report? How does it act as a control device? (Lo 8) 123
What is the purpose of comparing a purchase invoice with a purchase order? of comparing a receiving report with a purchase invoice? (Lo 8) 123
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