Multiple Choice

Topic: COSO Framework

LO: 2

Level of Difficulty: EASY

1. Which of the following is not an internal control component identified in the COSO framework:

A) Risk assessment

B) Monitoring activities

C) Technology

D) Control environment

Topic: Internal Control

LO: 2

2.Which of the following is desirable in a good system of internal accounting control?

A)Responsibility and authority for a given function should be shared among several employees

B)Appropriate forms, such as checks and sales invoices, should have preprinted control numbers

C)All accounting personnel in a firm should be bonded

D)To obtain the benefit of specialization, employees should not be rotated among similar jobs

Topic: Segregation of Duties

LO: 2

3.Which of the following is a poor internal accounting control feature?

A)Segregation of duties.

B)Combining authorization with custodianship.

C)Rotation of personnel.

D)Internal auditing.

Topic: Internal Controls for Cash

LO: 2, 4

4. Procedures requiring that the recording of asset transactions be separated from the custody of those assets:

A) Will uncover collusion among employees

B) Are important only in very large businesses

C) Are especially important in handling cash

D) Make it easy for an employee to cover up the theft of an asset

Topic: Internal Control

LO: 2

5.In establishing an effective internal control structure, management should:

A) Establish a good control environment.

B) Provide an effective accounting system.

C) Integrate control procedures into the control environment and accounting system.

D) All of the above.

Topic: Internal Controls for Cash

LO: 4

6.From the viewpoint of good internal accounting control, which of the following individuals would be the proper person to prepare bank reconciliations for a company that receives cash payments both through the mail and from customers in person?

A) The individual who opens the companys mail and lists the payments received

B) The individual who works in the customer service department and receives payments from customers who pay in person

C) The individual who deposits the daily cash receipts in the bank

D) None of the above

Topic: Internal Controls for Cash

LO: 4

7.Which of the following features should not be included in a good system of internal accounting control over cash?

A) All receipts are deposited daily in the bank.

B) All major disbursements are made by check, and an imprest fund is used for petty cash disbursements.

C) Cash handling is separated from the recording of cash transactions.

D) Monthly bank reconciliations are prepared by the person who makes the daily bank deposits.

Topic: Internal Controls for Cash

LO: 2, 4

8.Which of the following is not a feature of good internal accounting control over cash?

A) All cash receipts are deposited in the bank each day.

B) Most bills are paid with paper currency and coins to minimize the bank service charges.

C) A bank reconciliation is prepared when each bank statement is received.

D) Cash is handled separately from the recording of cash transactions.

Topic: Cash Balance

LO: 3, 5

9.The Cash amount properly shown on the year-end balance sheet is the

A) Balance in the general ledger account before the year-end bank reconciliation

B) Balance per the year-end bank statement

C) Balance per the year-end bank statement less deposits in transit and plus outstanding checks

D) Balance in the general ledger account after entries from the year-end bank reconciliation have been posted

Topic: Reporting Cash

LO: 3

10.A compensating balance refers to:

A) The minimum balance established for a petty cash fund

B) A minimum balance that a financial institution requires a firm to maintain in its account as part of a borrowing arrangement

C) The final cash balance achieved in a bank reconciliation

D) The amount of cash invested temporarily in highly marketable securities

Topic: Bank Reconciliation

LO: 3, 5

11.The following journal entry is necessary upon discovery of a NSF check during a bank reconciliation:

A) Accounts Receivable

Cash

B) Not Sufficient Funds Expense

Cash

C) Miscellaneous Expense

Cash

D) No entry is necessary because the bank makes the entry.

Topic: Bank Reconciliation

LO: 5

12.At May 31, Michaelis Company has outstanding checks totaling $19,600. The bank reconciliation for May should show these checks as a(n):

A) Deduction from balance per bank statement

B) Addition to balance per bank statement

C) Addition to balance per general ledger

D) Deduction from balance per general ledger

Topic: Bank Reconciliation

LO: 5

13.Third Montana Bank collected a note for Nicole Company. This collection, not yet recorded in Nicoles books, appears on the bank reconciliation as a(n):

A) Addition to balance per general ledger

B) Deduction from balance per bank statement

C) Addition to balance per bank statement

D) Deduction from balance per general ledger

Topic: Bank Reconciliation

LO: 5

14.Which of the following bank reconciliation items should not be added to or subtracted from the bank statement balance to determine the reconciled cash balance?

A) Outstanding checks

B) Deposits in the mail but not yet received by the bank

C) Bank service charges

D) None of the above

Topic: Bank Reconciliation

LO: 3, 5

15.Which of the following items would you add to the Flitter Companys bank statement balance to arrive at the reconciled cash balance in a bank reconciliation:

A) Bank service charges

B) Outstanding and NSF checks

C) NSF checks Bank collection charges

D) None of the above

Topic: Direct Write-Off Method

LO: 6

16.The entry to record the write-off of Ward Companys account under the direct write-off method is:

A) Accounts Receivable--Ward Company

Allowance for Doubtful Accounts

B) Bad Debts Expense

Allowance for Doubtful Accounts

C) Allowance for Doubtful Accounts

Accounts Receivable--Ward Company

D) Bad Debts Expense

Accounts Receivable--Ward Company

Topic: Allowance Method

LO: 1

17.The entry to record the write-off of Sepich, Inc.s account using the allowance method is:

A) Bad Debts Expense

Allowance for Doubtful Accounts

B) Bad Debts Expense

Accounts Receivable--Sepich, Inc.

C) Allowance for Doubtful Accounts

Accounts Receivable--Sepich, Inc.

D) Accounts Receivable--Sepich, Inc.

Allowance for Doubtful Accounts

Topic: Allowance Method

LO: 1

18.If a company fails to make an adjusting entry to estimate doubtful accounts, then this error:

A) Understates owners equity

B) Understates assets

C) Overstates net income

D) Overstates expenses

Topic: Percentage of Net Sales Method

LO: 2

19.Assume the following unadjusted account balances at the end of the accounting period for Margarete Company: Accounts Receivable, $100,000; Allowance for Doubtful Accounts, $1,400 (debit balance); and Net sales, $1,200,000.

If Margaretes past experience indicates credit losses of 1% of net sales, the adjusting entry to estimate doubtful accounts is:

A) Bad Debts Expense12,000

Accounts Receivable12,000

B) Bad Debts Expense10,600

Allowance for Doubtful Accounts10,600

C) Bad Debts Expense13,400

Allowance for Doubtful Accounts13,400

D) Bad Debts Expense12,000

Allowance for Doubtful Accounts12,000

Topic: Percentage of Net Sales Method

LO: 2

20.Assume the following unadjusted account balances at the end of the accounting period for Emmie Company: Accounts Receivable, $300,000; Allowance for Doubtful Accounts, $4,200 (debit balance); and Net sales, $3,600,000.

If Emmies past experience indicates credit losses of 1% of net sales, the adjusting entry to estimate doubtful accounts is:

A) Bad Debts Expense36,000

Accounts Receivable36,000

B) Bad Debts Expense31,800

Allowance for Doubtful Accounts31,800

C) Bad Debts Expense40,200

Allowance for Doubtful Accounts40,200

D) Bad Debts Expense36,000

Allowance for Doubtful Accounts36,000

Topic: Credit Card Sales

LO: 3

21.A retailer that makes credit card sales:

A) Absorbs any losses on uncollectible credit card accounts

B) Is charged a fee ranging from 1% to 5% of the amount of each credit card sale

C) Records such sales as a debit to Cash or Accounts Receivable, a debit to Credit Card Fees Expense, and a credit to Sales Revenue

D) Both (B) and (C).

Topic: Accounts Receivable Aging Method

LO: 2

22.River Forest, Inc.s $180,000 Accounts Receivable balance at December 31 consisted of $160,000 current balances and $20,000 past-due balances. At December 31, the Allowance for Doubtful Accounts had a credit balance of $1,600. River Forest estimated that 2% of current balances and 15% of past-due balances will prove uncollectible.

The adjusting entry to record credit losses is:

A) Bad Debts Expense5,800

Allowance for Doubtful Accounts5,800

B) Bad Debts Expense4,600

Allowance for Doubtful Accounts4,600

C) Bad Debts Expense4,200

Accounts Receivable4,200

D) Bad Debts Expense7,400

Allowance for Doubtful Accounts7,400

Topic: Accounts Receivable Aging Method

LO: 2

23.Hockey, Inc.s $540,000 Accounts Receivable balance at December 31 consisted of $480,000 current balances and $60,000 past-due balances. At December 31, the Allowance for Doubtful Accounts had a credit balance of $4,800. Hockey, Inc. estimated that 2% of current balances and 15% of past-due balances will prove uncollectible.

The adjusting entry to record credit losses is:

A) Bad Debts Expense17,400

Allowance for Doubtful Accounts17,400

B) Bad Debts Expense13,800

Allowance for Doubtful Accounts13,800

C) Bad Debts Expense12,600

Accounts Receivable12,600

D) Bad Debts Expense22,200

Allowance for Doubtful Accounts22,200

Topic: Percentage of Net Sales Method

LO: 2

24.Princess Companys Accounts Receivable balance at December 31 was $300,000 and there was a credit balance of $1,400 in the Allowance for Doubtful Accounts. The years sales were $1,800,000. Princess estimates credit losses for the year at 1.5% of sales.

After the appropriate adjusting entry is made for credit losses, what is the net amount of accounts receivable included in the current assets at year-end?

A) $300,000

B) $271,600

C) $325,400

D) $277,400

25.Mario Companys Accounts Receivable balance at December 31 was $900,000 and there was a credit balance of $4,200 in the Allowance for Doubtful Accounts. The years sales were $5,400,000. Mario estimates credit losses for the year at 1.5% of sales.

After the appropriate adjusting entry is made for credit losses, what is the net amount of accounts receivable included in the current assets at year-end?

A) $900,000

B) $814,800

C) $976,305

D) $832,200

Topic: Contingent Liabilities

LO: 3

26.Which of the following is not a contingent liability?

A) Environmental cleanup costs

B)Lawsuits

C) Discount on notes payable

D) Credit guarantees

Topic: Income Tax Payable

LO: 1

27.Which of the following liabilities is most likely an estimated amount rather than an amount known with certainty?

A) Wages payable

B) FICA taxes payable

C) Accounts payable

D) Income tax payable

Topic: Contingent Liabilities

LO: 3

28.A contingent liability is an obligation that depends on the occurrence of a future event and that should be recorded in the accounts:

A) If the related future event will probably occur

B) If the amount is due in cash within one year

C) If the amount is reasonably estimated

D) The related future event will probably occur and the amount is reasonably estimated.

Topic: Current Liabilities Definition

LO: 1

29.A current liability is an obligation that requires the use of an existing asset or the creation of another current liability:

A) Within the coming year or the operating cycle, whichever is shorter

B) Within the coming year or the operating cycle, whichever is longer

C) Within the coming year

D) Within the next operating cycle

Topic: Contingent Liabilities

LO: 3

30.A contingent liability is an obligation that should be:

A) Disclosed in a footnote to the balance sheet when the contingency is remote

B) Recorded in the accounts if the amount may be reasonably estimated and it is probable that the future event creating the obligation will occur

C) Classified in the owners equity section of the balance sheet when the future event creating the liability is not likely to occur

D) Recorded in the accounts and classified in a contingent liabilities section of the balance sheet between current liabilities and long-term liabilities

Topic: Warranty Liabilities

LO: 1, 3

31.Oak Park Appliances, Inc. sells food processors for $300 with a 120-day warranty against defects. Past experience indicates that 5% of the processors will have some defect during the warranty period and that the necessary repairs and adjustments will cost $50 per defective unit. Sales for August were $438,000. 30 of the units sold in August were reported defective and repaired in August.

What is the August 31 journal entry for the estimated liability for product warranties for units sold in August?

A) Product Warranty Expense21,900

Estimated Liability for Product Warranty21,900

B) Product Warranty Expense3,650

Estimated Liability for Product Warranty3,650

C) Estimated Liability for Product Warranty3,650

Product Warranty Expense3,650

D) Product Warranty Expense2,150

Estimated Liability for Product Warranty2,150

Topic: Warranty Liabilities

LO: 1, 3

32.Forest Grove Appliances, Inc. sells food processors for $900 with a 120-day warranty against defects. Past experience indicates that 5% of the processors will have some defect during the warranty period and that the necessary repairs and adjustments will cost $150 per defective unit. Sales for August were $1,404,000. 30 of the units sold in August were reported defective and repaired in August.

What is the August 31 journal entry for the estimated liability for product warranties for units sold in August?

A) Product Warranty Expense70,200

Estimated Liability for Product Warranty70,200

B) Product Warranty Expense11,700

Estimated Liability for Product Warranty11,700

C) Estimated Liability for Product Warranty11,700

Product Warranty Expense11,700

D) Product Warranty Expense7,200

Estimated Liability for Product Warranty7,200

Topic: Warranty Liabilities

LO: 1, 3

33.Boris, Inc. sells a single product for $900 per unit, including a 90-day warranty against defects. It is estimated that 3% of the units sold will prove defective and require an average repair cost of $70 per unit. During July, 800 units were sold. Five of them were reported defective and repaired in July.

What amount should be added to the Estimated Liability for Product Warranties for July?

A) $ 4,500

B) $ 1,680

C) $18,900

D) $ 1,330

Topic: Warranty Liabilities

LO: 1, 3

34.Crescent City, Inc. sells a single product for $2,700 per unit, including a 90-day warranty against defects. It is estimated that 3% of the units sold will prove defective and require an average repair cost of $210 per unit. During July, 800 units were sold. Five of them were reported defective and repaired in July.

What amount should be added to the Estimated Liability for Product Warranties for July?

A) $13,500

B) $44,100

C) $56,700

D) $ 3,990

Topic: Warranty Liabilities

LO: 1, 3

35.Pedal Power Products Company sells bicycles for $240, with a 30-day warranty against defects. Past experience indicates that 6% of the bicycles will have a defect and that the necessary repairs will cost $32 per bicycle. Sales for May were $216,000; 20 units sold in May were found defective and repaired that month.

What is the May 31 journal entry for the estimated liability for product warranties?

A) Product Warranty Expense1,088

Estimated Liability for Product Warranty1,088

B) Product Warranty Expense640

Estimated Liability for Product Warranty640

C) Estimated Liability for Product Warranty1,728

Product Warranty Expense1,728

D) Estimated Liability for Product Warranty1,088

Product Warranty Expense1,088