ACCT 1080 EXAM 3 (ACCT1080)
Key Terms & Definitions:
• Direct Write-off Method and Allowance Method. Which does GAAP require?
• Cash Ratio.
... [Show More] What does a higher number indicate?
• Maturity Value of a Note is..
• Acid Test Ratio
• Days Sales in Receivables
• A/R Turnover Ratio
SAMPLE PROBLEMS:
Chapter 7 Accounting Information Systems
Learning Objective 7-1
An accounting information system (AIS) collects, records, stores, and processes accounting data to produce information that is useful for decision makers.
Answer: TRUE
An effective accounting information system with adequate internal controls can safeguard a business's assets and reduce the likelihood of fraud and errors.
Answer: TRUE
An accounting information system has three basic components: source documents and input devices, processing and storage, and outputs.
Answer: TRUE
Pre-numbered source documents provide necessary control in a system by automatically assigning a sequential number to each new transaction.
Answer: TRUE
A source document provides the evidence and data for accounting transactions. Answer: TRUE
Which of the following is true of data processing and storage in a computerized information system?
A) In a computerized accounting information system, processing includes manually journalizing transactions and posting to the accounts.
B) In a computerized accounting information system, there will be a main centralized computer where data is stored, which cannot be accessed from any other computers.
C) In both manual and computerized systems, all data are contained in paper documents and are often stored in filing cabinets and off-site document warehouses.
D) In a computerized accounting information system, companies need to spend large amounts of cash to ensure that their data and information are secure.
Answer: D
The main computer where data is stored, which can be accessed from many different computers is known as a(n) .
A) internet protocol
B) RAM
C) server
D) router Answer: C
Which of the following is an example of a storage device in an accounting information system?
A) monitor
B) network
C) printer
D) server Answer: D
Which of the following is an input device in an accounting information system?
A) keyboard
B) internet protocol
C) printer
D) router Answer: A
Which of the following is an output device in an accounting information system?
A) keyboard
B) internet protocol
C) printer
D) mouse Answer: C
Which of the following is true of outputs in an accounting information system?
A) In a manual system, reports and financial statements must be created using Word documents, Excel spreadsheets, or PowerPoint.
B) In a computerized system, the software can generate reports instantaneously that can never be manipulated.
C) Examples of outputs in an accounting information system include purchase invoices, bank checks, and sales invoices.
D) Since the output in an accounting information system are audited and error-free, it provides the evidence and data for accounting transactions.
Answer: A
Which of the following is true of the comparison between a manual and a computerized accounting information system?
A) In both manual and computerized systems, reports and financial statements must be created using Word documents, Excel spreadsheets, or PowerPoint.
B) In a computerized system, the software can generate financial reports instantaneously that can never be manipulated.
C) In a manual system, data are contained in paper documents that are often stored in filing cabinets and off-site document warehouses; whereas in a computerized system, data are stored on a main computer called a server.
D) In both manual and computerized systems, processing data includes manually journalizing transactions and posting to the accounts.
Answer: C
Learning Objective 7-2
A subsidiary ledger is a record of accounts that provides supporting details on individual balances, the total of which appears in a general ledger account.
Answer: TRUE
The accounts payable subsidiary ledger lists each vendor along with amounts paid to the vendors and the remaining amounts owed to them.
Answer: TRUE
The Accounts Receivable balance in the general ledger may or may not equal the sum of the accounts in the accounts receivable subsidiary ledger.
Answer: FALSE
After posting entries in a sales journal to the general ledger, the Accounts Receivable balance in the general ledger should equal the sum of the individual customer balances in the accounts receivable subsidiary ledger.
Answer: TRUE
A special journal is:
A) an accounting journal designed to record a specific type of transaction.
B) an accounting journal that holds individual accounts that support a specific general ledger account.
C) a record of accounts that provides supporting details on individual balances, the total of which appears in a general ledger account.
D) a created list of the accounts used by a business entity to define each class of items for which cash is spent or received.
Answer: A
Adjusting entries are recorded in the .
A) cash payments journal
B) purchases journal
C) cash receipts journal
D) general journal Answer: D
A subsidiary ledger is:
A) an accounting journal designed to record a specific type of transaction.
B) a created list of the accounts used by a business entity to define each class of items for which cash is spent or received.
C) a complete record of business transactions recorded in a ledger over the life of a company.
D) a record of accounts that provide supporting details on individual balances, the total of which appears in a general ledger account.
Answer: D
Which of the following is true of an accounts payable subsidiary ledger?
A) It does not indicate the amount owed to each vendor.
B) It shows only a single total for the amount owed on account.
C) It lists vendors in alphabetical order, along with amounts paid to the vendors and the remaining amounts owed to them.
D) Its format is entirely different from an accounts receivable subsidiary ledger. Answer: C
Which of the following is true of a control account?
A) It is a valuation account from which balances are added to another account.
B) Its balance equals the sum of the balances in a group of related accounts in a subsidiary ledger.
C) It is equivalent to a contra account and represents the offsetting nature of debits and credits on a firm's financial statements.
D) It holds individual accounts that support a general ledger account. Answer: B
Which of the following is true of an accounts receivable subsidiary ledger?
A) It does not include a receivable account for each customer, but includes a cumulative account for all customers.
B) It contains information about the amount each customer purchased on credit, but excludes the customer name.
C) The total of the accounts in the accounts receivable subsidiary ledger must equal the accounts receivable balance in the general ledger.
D) Companies keep an accounts payable subsidiary ledger that is entirely different than the accounts receivable subsidiary ledger.
Answer: C
Assume that a company has only four customers: A, B, C, and D. The accounts receivable balance in the general ledger is $7,983 and the accounts receivable subsidiary ledger of customers A, C, and D have $1,246, $2,596 and $3,240 respectively. Calculate the amount in the accounts receivable subsidiary ledger account of customer B.
A) $7,082
B) $2,147
C) $1,391
D) $901 Answer: D
Explanation: D) The accounts receivable balance of $7,983 in the general ledger equals the sum of the accounts in the accounts receivable subsidiary ledger ($1,246 + $2,596 + ? +
$3,240). Therefore, the amount in the accounts receivable subsidiary ledger account of customer B = $7,983 - ($1,246 + $2,596 + $3,240) = $901
A company has four vendors and the accounts payable subsidiary ledger shows the following balances.
Alpha $275,821
Beta 143,474
Gamma 78,943
Delta 34,187
Calculate the accounts payable balance in the general ledger. A) $419,295
B) $532,425
C) $275,821
D) $256,604
Answer: B
Which of the following is true of a sales journal?
A) It is a special journal used to record all the cash sales.
B) It is used to record the sales of capital assets, such as buildings.
C) It is a special journal used to record credit sales.
D) It is a general journal that is used to record the adjustments in revenue account. Answer: C
Tangent Corporation sold a product for $7,150 to Michael on credit. The cost of goods sold is $5,650.Assuming that the firm is following a perpetual inventory system and using a sales journal, it will record $5,650 in the:
A) Accounts Receivable DR, Sales Revenue CR column.
B) Cost of Goods Sold DR, Merchandise Inventory CR column.
C) Merchandise Inventory DR, Cost of Goods Sold CR column.
D) Sales Revenue DR, Accounts Receivable CR column. Answer: B
Which of the following is true of a sales journal prepared under the perpetual inventory system?
A) It includes a Cost of Goods Sold DR, Merchandise Inventory CR column.
B) It records both cash and credit sales transactions.
C) All transactions recorded in a sales journal are also entered in the general journal.
D) It cannot be used with a perpetual inventory system. Answer: A
If a business uses the periodic inventory system, the sales journal:
A) will record both the cash and credit sales.
B) will include a Purchase DR and Account Receivable CR column.
C) will exclude the Accounts Receivable DR and Sales Revenue CR column.
D) will not include the Cost of Goods Sold DR and Merchandise Inventory CR column. Answer: D
Deal Corporation sells a product for $500 on account to Liza. This transaction will be recorded in the:
A) cash payments journal.
B) sales journal.
C) cash receipts journal.
D) purchase journal.
Answer: B
Tangent Corporation makes a $1,200 purchase of merchandise inventory on account. This transaction will be recorded in the:
A) cash payments journal.
B) sales journal.
C) cash receipts journal.
D) purchases journal. Answer: D
Deal Corporation sells a product for $500 cash to Liza. This transaction will be recorded in the:
A) cash payments journal.
B) sales journal.
C) cash receipts journal.
D) purchase journal.
Answer: C
Depreciation of fixed assets is recorded in a:
A) cash payments journal.
B) sales journal.
C) cash receipts journal.
D) general journal. Answer: D
Learning Objective 7-3
The purchases journal is a special journal used to record all purchases of merchandise inventory, office supplies, and other assets on account.
Answer: TRUE
When recording in a purchases journal with a periodic inventory system, the Merchandise Inventory DR column would be replaced with a column titled Cost of Goods Sold DR. Answer: FALSE
Credit purchases are recorded in the purchases journal. Answer: TRUE
The Other Accounts DR columns of a purchases journal are used for recording merchandise inventory and office supplies.
Answer: FALSE
Which of the following is a column of a purchases journal?
A) Cost of Goods Sold CR
B) Accounts Payable CR
C) Sales Revenue DR
D) Interest Revenue CR
Answer: B
The purchases journal of a business that uses periodic inventory system will include a column titled:
A) Cost of Goods Sold DR.
B) Purchases DR.
C) Accounts Payable DR.
D) Merchandise Inventory DR. Answer: B
Cash purchases are generally recorded in the:
A) sales journal.
B) cash receipts journal.
C) cash payments journal.
D) purchases journal. Answer: C
On July 4, a hardware manufacturing firm purchased inventory on account for $1,300. The company plans to pay $700 in the next week and the remaining in the week after. Which of the following is the correct entry to record this transaction in a purchases journal? Assume a perpetual inventory system is used.
A) $650 will be recorded in the Accounts Payable CR and Merchandise Inventory CR column.
B) $2,000 will be recorded in the Accounts Payable DR and Merchandise Inventory DR column.
C) $1,300 will be recorded in the Merchandise Inventory CR and Accounts Payable DR column.
D) $1,300 will be recorded in the Accounts Payable CR and Merchandise Inventory DR column.
Answer: D
On April 1, a hardware manufacturing firm purchases inventory on account for $700. Which of the following correctly describes the effect of this transaction? Assume a perpetual inventory system is used.
A) Merchandise Inventory decreases by $700 and Accounts Receivable decreases by $700.
B) Merchandise Inventory decreases by $700 and Accounts Receivable increases by $700.
C) Merchandise Inventory increases by $700 and Accounts Payable decreases by $700.
D) Merchandise Inventory increases by $700 and Accounts Payable increases by $700. Answer: D
Which of the following is true of posting entries from a purchases journal to the general ledger?
A) The posting references are not mentioned in the subsidiary ledger.
B) The Accounts Payable balance in the general ledger should be less than the sum of the individual vendor balances in the subsidiary ledger.
C) The amounts in the Other Accounts DR column are posted individually to the specific accounts.
D) It is done on a daily basis for all the accounts. Answer: C
On May 4, a retail firm pays a rent of $1,500 for the month of April. Which of the following is true when this transaction is recorded in a cash payment journal?
A) Both assets and equity will increase by $1,500.
B) Both assets and liabilities will decrease by $1,500.
C) Both assets and equity will decrease by $1,500.
D) Both liabilities and equity will increase by $1,500. Answer: C
Which of the following is true of posting entries from a cash payment journal to a general ledger?
A) Entries in the cash payments journal are posted monthly to the accounts payable subsidiary ledger and daily to the general ledger.
B) The postings of accounts payable are credits and increase the balance in the individual accounts payable account.
C) After posting, a check mark is entered in the cash payments journal and the posting reference is printed in the subsidiary ledger.
D) At the end of the month, each column is totaled and the totals, including the Other Accounts DR column, are posted to the specific general ledger accounts.
Answer: C
When using a manual accounting information system, which of the following will be recorded in the general journal?
A) depreciation on equipment
B) payment of accounts payable
C) purchase of merchandise inventory on account
D) receipt of cash from a debtor Answer: A
If there is no cash involved in a particular business transaction then the transaction should be recorded in:
A) either cash receipts journal or general journal.
B) either sales journal or purchases journal.
C) only general journal.
D) sales journal, purchases journal, or general journal. Answer: D
If there is cash involved in a particular business transaction then the transaction should be recorded in either:
A) cash payments journal or cash receipts journal.
B) cash payments journal or general journal.
C) cash payments journal or cash receipts journal and in general journal.
D) sales journal or purchases journal. Answer: A
Learning Objective 7-4
Enterprise resource planning (ERP) systems are software systems that can integrate all of a company's functions, departments, and data into a single system.
Answer: TRUE
In a computerized accounting information system, the business does not have to record the transaction in debit and credit format.
Answer: TRUE
In a networked system, the server stores the program and the data. Answer: TRUE
An enterprise resource planning (ERP) system is a:
A) hardware system that controls the access of employees to different levels of production in a firm.
B) software system used by small companies to record revenue and expenses.
C) hardware system of electronic linkages that allows different computers to share the same information.
D) software system that can integrate all of a company's functions, departments, and data into a single system.
Answer: D
Which of the following is an advantage of an enterprise resource planning (ERP) system?
A) It is inexpensive to implement.
B) It does not provide financial benefits to both small and large corporations.
C) It replaces separate software systems, such as sales and payroll.
D) Its implementation requires a little commitment of time and people. Answer: C
BM Corporation makes a sale for cash to Roger. In which of the following functions of QuickBooks will this transaction be recorded?
A) Pay Bills
B) Enter Bills
C) Invoices
D) Receive Payments Answer: D
BM Corporation makes a sale on account to Roger. In which of the following functions of QuickBooks will this transaction be recorded?
A) Pay Bills
B) Enter Bills
C) Invoices
D) Receive Payments Answer: C
Mercury Corporation receives a landscaping bill on January 15 and is required to pay it before February 15. In which of the following functions of QuickBooks will this transaction be recorded on the date of receipt of the bill?
A) Pay Bills
B) Enter Bills
C) Invoices
D) Receive Payments Answer: B
Mercury Corporation receives a landscaping bill on January 15 and is required to pay it before February 15. In which of the following functions of QuickBooks will this transaction be recorded on the date of payment of the bill?
A) Receive Payments
B) Enter Bills
C) Invoices
D) Pay Bills Answer: D
Chapter 8 Internal Control and Cash
Learning Objective 8-1
Sarbanes-Oxley Act requires all the private companies in the U.S. to maintain an internal control system.
Answer: FALSE
Under the Sarbanes-Oxley Act, accounting firms are allowed to audit a public company and provide certain consulting services for the same client.
Answer: FALSE
Separation of duties is a part of the definition of internal control. Answer: FALSE
Internal auditors monitor company controls to safeguard assets and ensure that employees are following company policies.
Answer: TRUE
External auditors evaluate company controls to ensure the financial statements are presented fairly in accordance with Generally Accepted Accounting Principles.
Answer: TRUE
The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight Board. Answer: FALSE
Separating the custody of assets from accounting implies that the accountants must not handle cash, and the cashier must not have access to the accounting records.
Answer: TRUE
Which of the following is true of internal control?
A) A company's outside auditor is responsible for the company's internal control system.
B) One of the major purposes of internal control is to ensure that the assets are safeguarded.
C) Internal control procedures tend to diminish the importance of operational efficiency.
D) Internal controls are mainly used to ensure timely payment of liabilities. Answer: B
Which of the following is one of the purposes of internal control?
A) to encourage employees to follow company policy
B) to ensure timely payment of Accounts Payables
C) to ensure timely collection of Accounts Receivable
D) to guarantee that a business makes a profit Answer: A
Which of the following is representative of safeguarding assets?
A) keeping office supplies under lock and key
B) reducing expense to increase operating profit
C) increasing operating profit to increase net income
D) ensuring maximum use of resources Answer: A
Which of the following is one of the benefits provided by internal control?
A) ensures timely collection of Accounts Receivables
B) ensures that financial statements are produced timely
C) guarantees that a business makes profit
D) promotes operational efficiency Answer: D
Which of the following is a key element of good internal control?
A) having latest version of information system installed
B) having audits at periodic intervals
C) having a good working environment for employees
D) allowing no vacations and job rotations Answer: B
Which of the following describes "firewall"?
A) a malicious program that enters program code or destroys data without authorization
B) when two or more people cooperate together to defraud a company
C) a technique for protecting data
D) when a company defrauds its suppliers by making false claims Answer: C
Which of the following describes the control environment?
A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
B) The control environment is the "tone at the top" of the business.
C) The control environment is designed to ensure that the business earns profit.
D) A company must identify its risks. Answer: B
Which of the following describes the internal control component "risk assessment?"
A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
B) Risk assessment is the "tone at the top" of the business.
C) A company must identify its risks and take necessary steps to minimize it.
D) Risk assessment is designed to ensure that the business's goals are achieved. Answer: C
In the following situation, which internal control procedure needs strengthening?
At Syria Services, the junior accountant collects checks and cash from customers and records the transactions into the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts.
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents Answer: C
In the following situation, which internal control procedure needs strengthening? Santhom Inc. does not have a separate accounting department. Its operating departments are also responsible for recording transactions in the books of accounts of the company apart from their main operations.
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents Answer: C
A pharmaceutical company testing drugs to determine possible side effects is a part of:
A) monitoring controls.
B) information systems.
C) control procedures.
D) risk assessment. Answer: D
Which of the following is a problem that must be addressed in the internal controls for e- commerce?
A) encryption
B) firewall
C) phishing expeditions
D) separation of duties Answer: C
A(n) is a security procedure designed for e-commerce.
A) burglar alarm
B) firewall
C) fireproof vault
D) inventory storage Answer: B
Two or more people working together to circumvent internal controls and defraud a company is known as:
A) encryption.
B) firewalls.
C) collusion.
D) separation of duties. Answer: C
Learning Objective 8-2
A point-of-sale terminal provides control over cash receipts over the counter. Answer: TRUE
As a part of the internal control over cash receipts by mail, the mailroom sends both the customer checks and the remittance advices to the accounting department.
Answer: FALSE
Regarding controls over cash receipts by mail, the bank deposit slip should be compared to the remittance advices by the accounting department.
Answer: FALSE
For strong controls over cash receipts, the checks to be deposited should be sent to the treasurer, and the remittance advices should be sent to the accounting department.
Answer: TRUE
As long as the same person deposits customer checks and records the deposits into the journal, there will be good internal control over cash receipts.
Answer: FALSE
A basic principle of internal control over cash receipts is that the deposit of the cash and the recording of the receipts into the journal should be separated.
Answer: TRUE
Which of the following is the last step in the daily control over cash receipts by mail?
A) A mailroom employee sends all customer checks to the treasurer who has the cashier make the bank deposit.
B) The controller opens the mail and sends the remittance advices to the accounting department.
C) The controller compares the records of the day's bank deposit amount from the treasurer and the debit to cash from the accounting department.
D) The accounting department prepares journal entries to cash and the customers' accounts.
Answer: C
Which of the following is described as a system where customers send their checks directly to a post office box that belongs to a bank?
A) an encryption system
B) an imprest system
C) a lock-box system
D) a firewall system Answer: C
In a large company, the person who is responsible for comparing cash and the bank balance is the:
A) CEO.
B) CFO.
C) controller.
D) treasurer. Answer: C
Learning Objective 8-3
Before signing a check, the controller or the treasurer should examine the purchase order, the invoice, and the receiving report to determine that the company received the goods and that the company is paying only for the goods received.
Answer: TRUE
A receiving report should be matched with the supplier invoice before a payment to the supplier is approved.
Answer: TRUE
For good controls over cash payments, the company officer approving a payment voucher should be the same as the person who ordered the goods, to ensure that the correct amount of cash is paid.
Answer: FALSE
Which of the following is the first step in the purchasing and payment process?
A) The supplier ships the goods and sends an invoice to the purchaser.
B) The purchaser sends a check to the supplier.
C) The purchaser sends a purchase order to the supplier.
D) The purchase receives the inventory and prepares a receiving report. Answer: C
Which of the following items must be examined by the controller or treasurer before signing a check?
A) the ledger
B) the purchase order
C) the confirmation report
D) the journal entry Answer: B
Which of the following statements describes a purchase order?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as ordered.
D) It is a document authorizing a payment to a supplier. Answer: A
Which of the following statements describes an invoice from a supplier?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as ordered.
D) It is a document authorizing a payment to a supplier. Answer: B
Which of the following statements describes a receiving report?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as ordered.
D) It is a document authorizing a payment to a supplier. Answer: C [Show Less]