Midterm 2 Review questions Chap 4 5 6 and 7 Chapter 4 1 Which of the following is a requirement of the Sarbanes Oxley Act a The outside auditor must issue an internal control report for each public company and the Public Company Oversight Board evaluates the client s internal controls b The Public Company Oversight Board issues an internal control audit report for every publicly held company c Accounting firms may not both audit a public client and also provide certain consulting services for the same client d Public companies oversee the work of auditors of other public companies 2 Chapter 4 2 At the West Texas Clothing Store a sales employee assists customers with finding the items the customer wishes to purchase then rings up the purchase and collects the cash At the end of the day this employee counts the cash and fills out a cash count form Which internal control procedure is being violated by West Texas Clothing Store A Competent reliable and ethical personnel should be hired B Job rotation improves internal control C To validate their accounting records a company should have an audit by an external accountant D Separation of duties is necessary 3 Chapter 4 3 A company received a bank statement with a balance of 5 350 Reconciling items included a bookkeeper error of 200 a 300 check recorded as 500 two outstanding checks totaling 720 a service charge of 15 a deposit in transit of 180 and interest revenue of 21 What is the adjusted balance A 4 636 B 4 610 C 5 016 D 4 810 4 Chapter 4 4 The petty cash fund of 400 was established for minor disbursements At the end of the month the fund included petty cash tickets for the purchase of 185 in supplies 41 for postage 86 for fuel and a delivery charge of 65 and cash of 23 How much cash is required to replenish the fund A 23 B 226 C 312 D 377 Chapter 5 Accounting for marketable securities Record at Current Market Price Unrealized Gain Loss means company has not sold the stock Gain Loss sale of stock means company has sold stock Account for and control of accounts receivable Using the allowance method for uncollectible accounts Estimate uncollected accounts of sales method adjust by the amount of Receivable Aging accounts receivable method adjust to the amount Ratio Receivables turnover ratio Notes receivable and interest P Interest Rate Time Chapter 5 1 A B C D Marketable securities purchased on June 1 2015 for 85 000 were valued at 80 000 on December 31 2015 The securities were sold at beginning of 2016 for 83 000 The 2016 income statement should report a n Realized loss of 2 000 Realized gain of 3 000 Unrealized loss of 5 000 and a realized gain of 3 000 Unrealized gain recovered of 3 000 2 Which of the following values is used to report Accounts Receivable on the Balance Sheet A Net Realizable Value B Present Value C Market Value D Historical Cost Chapter 5 3 Espana Van Conversions had credit sales of 2 000 000 during Year 1 On 12 31 Year 1 the balance in Accounts Receivable was 81 000 The company estimates bad debts to equal 1 of credit sales What effect will the company s 12 31 adjusting entry have on the company s income statement and balance sheet a Decrease income by 20 000 no effect on balance sheet b Decrease income by 20 000 decrease assets by 20 000 c No effect on either income statement or balance sheet d None of the above Chapter 5 4 The Astroids Company records show the following aging of accounts receivable Days 0 30 31 60 61 90 Over 90 Amount 2 000 1 000 500 100 Estimated Uncollectible 5 20 30 50 If the balance in the Allowance For Doubtful Accounts is a credit of 50 before adjustment the Bad Debt Expense for the period is a 450 b 500 c 550 d 1400 Chapter 5 5 You received a 4 month 6 10 000 note on 10 1 2015 Your accounting period starts at 1 1 and ends at 12 31 How much interest revenue did you earn during 2015 on this note a 150 b 50 c 200 d 600 Chapter 5 6 The following information is from the 2015 records of Armadillo Camera Shops Accounts Receivable December 31 2015 330 000 debit Allowance for uncollectible accounts January 1 2015 30 000 credit Net sales for 2015 1 500 000 Accounts written off as uncollectible during 2015 25 500 Uncollectible accounts expense is estimated by the percent of sales method Management estimates that 2 of net sales are uncollectible Which of the following will be the 12 31 15 balance in the allowance for uncollectible accounts A 25 500 B 30 000 C 34 500 D 30 500 12 Chapter 6 Account for inventory net purchases and cost of goods sold use perpetual and periodic methods Using inventory costing methods LIFO FIFO Average Cost Lower of cost or market adjustment Using gross profit percentage and inventory turnover 13 Chapter 6 1 The ending inventory for Misty Harbor Co is 57 000 If beginning inventory was 68 000 and goods available for sale totaled 117 000 the cost of goods sold is A 60 000 B 128 000 C 68 000 D 49 000 E none of the above 14 Chapter 6 2 The following statements regarding perpetual inventory and periodic inventory methods of handling merchandise are all correct except choose one a A perpetual inventory method makes it unnecessary to take a physical count of inventory on hand b The perpetual inventory method offers better inventory control and more accurate determination of cost of goods sold than the period inventory method c The periodic inventory method is based upon the assumption that goods that were acquired and are not on hand have been previously sold d The periodic inventory system is less expensive to operate but may lead to inefficiencies Chapter 6 3 Regan Corporation s December 31 2015 ending inventory was understated by 42 000 What effect will this understatement have on total assets and net income for 2015 Assets Net income A understateNo effect B No effect No effect C understateunderstate D No effect overstate 16 Chapter 6 4 How does the buyer s accountant record transportation charges on a shipment labeled FOB shipping point and who pays the charges The charges were paid with cash A No entry is made because the seller pays the shipping charges B Debit Transportation Expense Credit cash because the buyer pays the shipping charges C Debit Inventory Credit cash because the buyer pays the shipping charges D Debit Sales Revenue Credit cash because the buyer pays the shipping charges 17 Chapter 6 5 A company s net sales revenue is 25 000 000 Its cost of goods sold is 15 000 000 Its beginning inventory is 100 000 and its ending inventory is 200 000 Which of the