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introductory financial accounting

Questions and Answers of Introductory Financial Accounting

What are cash equivalents?
What is the allowance to adjust short-term investments to market and why is it used?Multiple-Choice Exercises
What is the primary role of internal controls in managing a business?a. To ensure that no cash is stolen.b. To ensure that the financial statements are presented in such a manner as to provide
Which of the following is not one of the three areas for which internal control systems are intended to provide reasonable assurance?a. Effectiveness and efficiency of operationsb. Certification that
Which of the following is not one of the five elements of internal control?a. Analysis of control proceduresb. Control environmentc. Risk assessmentd. Information and communication
Which of the following is not one of the five categories of control activities?a. Segregation of dutiesb. Clearly defined authority and responsibilityc. Defalcation and financial reportingd. Checks
The internal audit function is part of what element of the internal control system?a. Control Activitiesb. Risk Assessmentc. Control Environmentd. Monitoring
Which of the following is not generally an internal control activity?a. Establishing clear lines of authority to carry out specific tasksb. Physically counting inventory in a perpetual inventory
Allowing only certain employees to order goods and services for the company is an example of what internal control procedure?a. Segregation of dutiesb. Safeguarding of assets and recordsc.
Deposits made by a company but not yet reflected in a bank statement are calleda. Deposits in transitb. Credit memorandac. Debit memorandad. None of the above
Which one of the following would not appear on a bank statement for a checking account?a. Service chargesb. Interest earnedc. Outstanding checksd. Deposits
Which one of the following is not a cash equivalent?a. 30-day certificate of depositb. 60-day corporate commercial paperc. 90-day U.S. Treasury billd. 180-day note issued by a local or state
Business activity is best described as:a. predictableb. lacking deviationc. cyclicald. noncyclical
The five primary activities of a business generally consist of:a. receiving assets, selling assets, issuing financial statements, collecting cash, and making cash disbursementsb. receiving assets,
Effective cash management and control includes all of the following except:a. The use of a petty cash fundb. Bank reconciliationsc. Short-term investments of excess cashd. Purchase of stocks and bonds
Cash management principles do not include:a. paying suppliers promptlyb. delaying payment of suppliersc. speeding up collection from customersd. earning the greatest return possible on excess cash
Which one of the following statements is true?a. Good cash management practices dictate that a company should maintain as large a balance as possible in its cash account.b. Sound internal control
(Appendix) Investments in equity securities are deemed to be‘‘passive’’ if:a. 100 percent of the firm’s stock is ownedb. between 50 percent and 100 percent of the firm’s stock is ownedc.
(Appendix) Equity and debt investments that management intends to sell in the future, but not necessarily in the near term, are called:a. Trading securitiesb. Available-for-sale securitiesc. Debt
(Appendix) When the market value of a company’s available-for-sale securities is lower than its cost, the difference should be:a. shown as a liabilityb. shown as a valuation allowance subtracted
ROLE OF INTERNAL CONTROL Internal controls play a crucial role in a business.Required:Discuss why internal controls are important. What are the potential consequences of an internal control
ELEMENTS OF INTERNAL CONTROL The Committee of Sponsoring Organizations of the Treadway Commission (COSO)discussed five elements of internal control.Required:Define and discuss these five elements of
BANK RECONCILIATION Firebird Corp. prepares monthly bank reconciliations of its checking account balance.The bank statement for May 2009 indicated the following:Balance, May 31, 2009 $29,700 Service
ADJUSTING ENTRY FROM BANK RECONCILIATION A customer paid for merchandise with a check that has been erroneously entered into Mutare’s cash account for $48 (it actually has been issued and paid for
ADJUSTING ENTRY FROM BANK RECONCILIATION Pyramid Corporation is assessed a $25 fee as the result of a $62 NSF check. Neither the fee nor the NSF check has been accounted for on Pyramid’s
BANK RECONCILIATION The accountant for Bellows Corp. was preparing a bank reconciliation as of April 30, 2009. The following items were identified:Bellows’ book balance $46,200 Outstanding checks
BANK RECONCILIATION Tiny Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement for October 2009 indicated the following:Balance, October 31, 2009 $7,920
CASH OVER AND SHORT On a recent day, Pence Company obtained the following data from its cash registers:Cash Sales per Register Tape Cash in Register after Removing Opening Change Register 1
CASH OVER AND SHORT Walker Department Store has one cash register. On a recent day, the cash register tape reported sales in the amount of $2,247.63. Actual cash in the register (after deducting and
PETTY CASH FUND Murphy, Inc., maintains a balance of $1,000 in its petty cash fund. On December 31, 2009, Murphy’s petty cash account has a balance of $425. Murphy replenishes the petty cash
PETTY CASH WITH CHANGE IN FUND BALANCE Basque, Inc., maintains a petty cash fund with a balance of $500. On December 31, 2009, Basque’s petty cash account has a balance of $275. Murphy replenishes
CASH REPORTING Brown Industries has the following items:Currency $20,000 Customer checks that have not been deposited 500 Cash in saving and checking accounts 80,000 Certificates of deposits that
FINANCING AND OPERATING CYCLES Business activity is often described as being cyclical in nature.Required:Describe the cyclical nature of business activity. Make sure to discuss the operating and
OPERATING CYCLE Businesses must decide whether to issue credit to customers.Required:Describe how selling to customers on credit affects the operating cycle.Cornerstone Exercise
CASH MANAGEMENT Effective cash management is very important to the operating performance of a business.Required:Explain the principles of cash management. Why might it be advantageous to delay paying
(APPENDIX) TRADING SECURITIES Franzen Finance began operations in 2009 and invests in securities classified as trading securities. During 2009, it entered into the following trading security
(APPENDIX) AVAILABLE-FOR-SALE SECURITIES Tolland Financial began operations in 2010 and invests in securities classified as available for sale. During 2010, it entered into the following
INTERNAL CONTROL SYSTEM Required:A list of terms and another list of definitions and examples are presented below. Make a list numbered 1 through 5 and match the letter of the most directly related
INTERNAL CONTROL TERMINOLOGY Required:A list of terms and another list of definitions and examples are presented below. Make a list numbered 1 through 7 and match the letter of the most directly
INTERNAL CONTROL OF CASH Edward Thompson, a longtime employee of a small grocery wholesaler, is responsible for maintaining the company’s cash records and for opening the daily mail, through which
CASH OVER AND SHORT Miller Enterprises deposits the cash received during each day at the end of the day. Miller deposited $12,730 on October 3 and $15,610 on October
Cash register records and other documents supporting the deposits are summarized as follows:10/3 10/4 Cash sales $ 4,072 $ 5,405 Collections on account 8,650 10,212 Total receipts $12,722 $15,617
BANK RECONCILIATION Johnson Corporation’s bank statement for October reports an ending balance of$6,248, whereas Johnson’s cash account shows a balance of $5,680 on October
The following additional information is available:a. A $165 deposit made on October 31 was not recorded by the bank until November.b. At the end of October, outstanding checks total $792.c. The bank
BANK RECONCILIATION The cash account for Fleming Company contains the following information for April:Cash balance, 3/31 $ 3,500 Cash received during April 21,400$24,900 Cash disbursements during
BANK RECONCILIATION Valentine Investigations has the following information for its cash account:Balance, 1/31 $ 5,030 Deposits during February 93,160 Checks written during February 92,270
COMPONENTS OF CASH The office manager for Bullock Products had accumulated the following information at the end of a recent year:Item Amount Accounts receivable $16,450 Change for cash registers
OPERATING CYCLE A list of businesses is presented below:Business Operating-Cycle Description. Appliance store. Clothing store. Electric utility. Tree nursery. Fast food restauranta. Very
FINANCING AND OPERATING CYCLES Which of the following activities belong to the operating cycle, and which belong to the financial cycle?a. Collection of cash from customersb. Payment of dividends to
OPERATING CYCLE AND CURRENT RECEIVABLES For each of the businesses described below, indicate the length of the operating cycle and the duration of the longest receivable that can be classified as
(APPENDIX) ALLOWANCE FOR AVAILABLE-FOR-SALE SECURITIES McCarthy Corporation’s allowance to reduce available-for-sale securities to market is$7,200 on December 31 (i.e., it is a credit balance),
(APPENDIX) ADJUSTING THE ALLOWANCE TO ADJUST TRADING SECURITIES TO MARKET Perry Corporation has the following information for its portfolio of trading securities at the end of the past four
(APPENDIX) INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES Williams Corporation acquired the following equity securities during 2009:200 shares of Southwestern Company capital stock $14,600 500 shares
ROLE OF INTERNAL CONTROL Internal control systems include policies and procedures designed to provide reasonable assurance that the corporation’s objectives are being met in three areas:a.
INTERNAL CONTROL FOR CASH After comparing cash register tapes with inventory records, the accountant for Benning Convenience Stores is concerned that someone at one of the stores is not recording
BANK RECONCILIATION Shortly after July 31, Morse Corporation received a bank statement containing the following information:Date Checks Deposits Balance 6/30 Beg. balance $ 7,958 7/1 $ 1,200 9,158
BANK RECONCILIATION Raymond Corporation received the following bank statement for the month of October 2009:Date Checks Deposits Balance 9/30 Beg. balance $ 4,831.50 10/2 $1,204.50 $2,970.18 6,597.18
BANK RECONCILIATION The cash account of Dixon Products reveals the following information:Cash Balance, 4/30 11,800 Deposits during May 37,600 Checks written during May 41,620 The bank statement for
(APPENDIX) RECORDING AVAILABLE-FOR-SALE SECURITIES TRANSACTIONS INCLUDING A SALE AFTER ADJUSTMENT TO THE ALLOWANCE ACCOUNT Morton Products had no investment in available-for-sale securities at
(APPENDIX) INVESTMENTS IN TRADING SECURITIES Maxwell Company engaged in the following transactions involving short-term investments:a. Purchased 200 shares of Bartco stock for $12,800.b. Received a
ROLE OF INTERNAL CONTROL Internal control systems include policies and procedures designed to provide reasonable assurance that the corporation’s objectives are being met in three areas:a.
INTERNAL CONTROL PROCEDURES FOR CASH RECEIPTS Sean and Liz Kinsella are planning to open and operate a coffee shop on a university campus. Sean and Liz are concerned that part of the cash that
Measure net sales revenue.
Describe internal control procedures for merchandise sales.
Describe the principal types of receivables.
Measure and interpret bad debt expense and the allowance for doubtful accounts.
Describe the cash flow implications of accounts receivable.
Account for notes receivable from inception to maturity.
Analyze profitability and asset management using sales and receivables.
Have there been any significant changes in the quality of production?
Have there been any significant changes in the economic environment of the firm?
How much interest will be due at maturity for each of the following interest-bearing notes?Principal Months to Maturity Annual Interest Ratea. $10,000 2 12%b. 42,000 5 14c. 18,000 4 13d. 37,000 6 11
How may analyzing sales and receivables provide information about a firm’s asset management?Multiple-Choice Exercises
Which of the following is not one of the criteria for revenue recognition?a. Delivery has occurred or services have been provided.b. The seller’s price to the buyer is fixed and determinable.c.
Food To Go is a local catering service. Conceptually, when should Food To Go recognize revenue from its catering service?a. at the date the customer places the orderb. at the date the meals are
When is revenue from the sale of merchandise normally recognized?a. when the customer takes possession of the merchandiseb. when the customer pays for the merchandisec. either on the date the
What does the phrase, ‘‘Revenue is recognized at the point of sale’’ mean?a. Revenue is recorded in the accounting records when the cash is received from a customer, and reported on the
On August 31, 2009, Montana Corporation signed a four-year contract to provide services for Minefield Company at $30,000 per year. Minefield will pay for each year of services on the first day of
Under the gross method, the seller records discounts taken by the buyera. at the end of the period in questionb. never; discounts are irrelevant under the gross methodc. after the receivable is
On April 20, McLean Company sells merchandise on account to Tazwell Corporation for $3,000 with terms 1/10, n/30. On April 28, Tazwell pays for half of the merchandise and on May 19 it pays for the
All of the following are ways in which receivables are distinguished except:a. accounts or notes receivableb. collectible or uncollectiblec. trade or nontrade receivabled. current or noncurrent
Which one of the following best describes the allowance for doubtful accounts?a. contra accountb. liability accountc. income statement accountd. cash flow account
If a company uses the direct write-off method of accounting for bad debts,a. it is applying the matching principle.b. it will record bad debt expense only when an account is determined to be
Which of the following best describes the objective of estimating bad debt expense with the credit sales method?a. to determine the amount of actual bad debt during a given periodb. to estimate the
Which of the following best describes the concept of the aging method of receivables?a. An accurate estimate of bad debt expense may be arrived at by multiplying historical bad debt rates by the
The aging method is closely related to the:a. income statementb. balance sheetc. statement of cash flowsd. statement of retained earnings
The credit sales approach is closely related to the:a. income statementb. balance sheetc. statement of cash flowsd. statement of retained earnings
Which one of the following statements is true if a company’s collection period for accounts receivable is unacceptably long?a. The company may need to borrow to acquire operating cash.b. The
Zenephia Corp. accepted a nine-month note receivable from a customer on October 1, 2008. If Zenephia has an accounting period which ends on December 31, 2008, when would it most likely recognize
The ‘‘principal’’ of a note receivable refers to:a. the amount of interest dueb. the present value of the notec. the financing company that is lending the moneyd. the amount of cash borrowed
Net profit margin percentage is calculated by:a. dividing net income by (net) salesb. dividing operating income by (net) salesc. subtracting operating income from (net) salesd. subtracting net income
SERVICE REVENUE Kibitz Fitness received $12,000 from customers on September 30, 2009. These payments were advance payments of yearly membership dues.Required:At December 31, 2009, calculate what the
SERVICE REVENUE Softball Magazine Company received advance payments of $5,000 from customers during 2009. At December 31, 2009, $1,200 of the advance payments still had not been earned.Required:After
SALES DISCOUNTS TAKEN Bolton Garage Doors Corporation sold merchandise with a price of $22,500 to Sammy’s Wholesale Company. Bolton offered terms of 2/10, n/30.Required:Prepare the journal entry to
SALES DISCOUNTS NOT TAKEN Bolton Garage Doors Corporation sold merchandise with a gross price of $22,500 to Sammy’s Wholesale Company. Bolton offered terms of 2/10, n/30 and uses the gross
SALES DISCOUNTS Ramsden Manufacturing sold merchandise with a gross price of $25,000 to Garner’s Hardware Store. Ramsden offered terms of 3/10, n/30.Required:Prepare the necessary journal entries
PERCENTAGE OF CREDIT SALES Clarissa Company has credit sales of $400,000 during 2010 and estimates at the end of 2010 that 2 percent of these credit sales will eventually default. Also, during 2010 a
WRITE-OFF OF UNCOLLECTIBLE ACCOUNTS The Rock has credit sales of $650,000 during 2010 and estimates at the end of 2010 that 3 percent of these credit sales will eventually default. Also, during 2010
AGING METHOD On January 1, 2009, Hungryman, Inc., has the following balances for accounts receivable and allowance for doubtful accounts:Accounts Receivable $363,000 Allowance for Doubtful Accounts
AGING METHOD On January 1, 2010, Smith, Inc., has the following balances for accounts receivable and allowance for doubtful accounts:Accounts Receivable $273,000 Allowance for Doubtful Accounts (a

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