51 Cards in this Set
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True or False
Technology such as cash registers, check protectors, time clocks and personal identification scanners can improve internal control.
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True
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True or False
Good internal control dictates that a person who controls an asset also maintains that asset's accounting records.
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False
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Separation of duties divides responsibility for a transaction or a series of related transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud.
True or False
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True
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T/F The payee is the person who signs a check, authorizing its payment.
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False
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A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.
T/F
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True
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If the Cash Over and Short account has a debit balance at the end of the period, the amount is reported as miscellaneous revenue
T/F
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False
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Accounts receivable occur from credit sales to customers T/F
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True
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The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared T/F
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True
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The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in fraction of year T/F
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True
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A company had net sales of $500,000 and an average accounts receivable of $80,000. Its accounts receivable turnover equals 6.25
T/F
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True
Accounts Receivable Turnover = Net Sales/Average Accounts Receivable
Accounts Receivable Turnover = $500,000/$80,000 = 6.25
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The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection. T/F
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True
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A company has sales of $350,000 and estimates that 0.7% of its sales are uncollectible. The estimated amount of bad debts expense is $2,450
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True $350,000 * .007 = $2,450
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Notes receivable are always classified as current liabilities. T/F
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False
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The matching principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period T/F
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True
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A company borrowed $1,000 by signing a six month promissory note at 5% interest. The total amount of interest is $25 T/F
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True
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Inadequacy refers to the insufficient capacity of a company's plant assets to meet the company's growing productive demands T/F
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True
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Plant assets refer to intangible assets that are used in the operations of a business T/F
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False
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Depreciation expense is calculated using estimates of an asset's salvage value and useful life T/F
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True
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Depreciation measures the actual decline in market value of an asset T/F
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False
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The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible T/F
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True
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A lawsuit is an example of a contingent liability for the defendant. T/F
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True
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A company can have a liability even if the amount of the obligation is unknown. T/F
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True
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A single liability can be divided between current and noncurrent liabilities T/F
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True
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Obligations not due within one year or the company's operating cycle, whichever is longer, are reported as current liabilities. T/F
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False
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The entry necessary to establish a petty cash fund should include:
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A debit to Petty Cash and a credit to Cash.
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Proper internal control
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responsibility for a task is clearly established and assigned to one person
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When a petty cash fund is in use
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Expenses paid with petty cash are recorded when the fund is replenished
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A company had average total assets of $897,000. Its gross sales were $1,090,000 and its net sales were $1,000,000. The company's total asset turnover equals
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Total Asset Turnover = Net Sales/Average Total Assets
Total Asset Turnover = $1,000,000/$897,000 = 1.11
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Land improvements are
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Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation.
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A company purchased a delivery van for $23,000 with a salvage value of $3,000 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?
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Depreciation Expense = (Cost - Salvage Value)/Est Useful Life * Length of Ownership
Depreciation Expense = ($23,000 - $3,000)/5 * 4/12; Depreciation Expense = $1,333
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An asset's book value is $18,000 on June 30, Year 6. The asset is being depreciated at an annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, Year 7 for $15,000, the company should record
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If the asset's book value is $18,000 on June 30, Year 6 and is being depreciated at a rate of $3,000 per year, an additional $4,500 of depreciation expense would be recognized by December 31, Year 7. Thus, the asset's book value on that date would be $13,500. If the asset is sold for $15…
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Obligations due to be paid within one year or the company's operating cycle, whichever is longer, are:
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Current liabilities.
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All of the following statements regarding uncertainty in liabilities are true except:
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A company only records liabilities when it knows whom to pay, when to pay, and how much to pay.
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Known liabilities:
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Include accounts payable, notes payable, and payroll.
Are obligations set by agreements, contracts, or laws.
Are measurable.
Are definitely determinable.
All of the choices are correct. :)
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Accounts payable:
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Are amounts owed to suppliers for products and/or services purchased on credit.
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Advance ticket sales totaling $6,000,000 cash would be recognized as follows
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Debit Cash, credit Unearned Revenue
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A contingent liability:
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Is a potential obligation that depends on a future event arising from a past transaction or event
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Employer payroll taxes:
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Are an added expense beyond the wages and salaries earned by employees
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Employers:
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Pay FICA taxes equal to the amount of FICA taxes withheld from the employees
Withhold employees' FICA taxes.
Pay unemployment taxes to the federal government.
Pay unemployment taxes to both the state and federal governments.
All are correct :)
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FUTA taxes are:
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Unemployment taxes.
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The current FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned $8,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages?
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Unemployment Taxes = $7,000 * (0.008 + 0.054); Unemployment Taxes = $434.00
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An employee earned $4,300 working for an employer. The current rate for FICA Social Security is 6.2% and the rate for FICA Medicare 1.45%. The employer's total FICA payroll tax for this employee is:
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Employer's Total FICA Tax = $4,300 * (0.062 + 0.0145) = $328.95
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The deferred income tax liability
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Represents income tax payments that are deferred until future years because of temporary differences between GAAP rules and tax accounting rules.
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All of the following statements regarding FICA taxes are true except
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A self-employed person is exempt from FICA taxes.
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a. On July 31, the company's cash account has a $27,497 debit balance but its July bank statement shows a $27,233 balance.
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Credit Bank statement balance $27,233.
Credit Book Balance $27,497
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Check # 3031 for $1,482 and Check # 3040 for $558 were outstanding on the June 30 bank reconciliation. Check # 3040 is listed with the July cancelled checks, but Check #3031 is not. Also, Check #3065 for $382 and Check #3069 for $2,281 both written in July are not among the canceled chec…
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bank statement balance Deduct: check no 3031 debit 1482
Check no 3065 debit 382
check no 3069 debit 2281
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In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that Check # 3056 for July rent was correctly written and drawn for $1,270 but was erroneously entered in the accounting records as $1,250.
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book balance deduct:
Error (Check 3056) debit 20
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a credit memo enclosed with the July bank statement indicates the bank collected $8,000 cash on a non-interest-bearing note for Branch, deducted a $45 collection fee, and credited the remainder to its account. Branch had not recorded this event before receiving the statement.
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Book Balance Add:
Proceeds of note less collection charge debit 7,955
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a debit memo for $805 lists a &795 NSF check plus a $10 NSF charge. The check had been received from a customer, Evan Shaw. Branch has not yet recorded this check as NSF.
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Book Balance Deduct:
NSF check including fee debit 805
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Enclosed with the July statement is a $25 debit memo for bank services. It has not yet been recorded because no previous notification had been received.
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Book Balance deduct:
Service Charge debit 25
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Branch's July 31 daily cash receipts of $11,514 were placed in the bank's night depository on that date, but do not appear on the july 31 bank statement.
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Bank Statement Balance Add:
deposit of July 31 debit $11,514
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RETL 261: Exam 2