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Question 1

The basic principles of an accounting information system include all of the following except

useful output.

periodicity.

cost effectiveness.

flexibility.

Question 2

Which of the following is not an advantage of computerized accounting systems?

Computerized accounting systems eliminate entering of transaction information.

Computerized accounting systems eliminate many errors resulting from human intervention.

Computerized accounting systems provide up-to-date information.

Data is entered only once in computerized accounting systems

Question 3

Each of the following is a common benefit of entry-level software packages except

customization.

network-compatibility.

all of these options are benefits.

audit trail.

Question 4

A company would not likely use subsidiary ledgers for

accounts receivable.

owner’s capital.

equipment.

inventory

Question 5

Which of the following is incorrect concerning subsidiary ledgers?

An advantage of the subsidiary ledger is that it permits a division of labor in posting.

The accounts receivable ledger is a subsidiary ledger.

A subsidiary ledger is a group of accounts with a common characteristic.

The purchases ledger is a common subsidiary ledger for creditor accounts.

Question 6

Two accounts with subsidiary ledgers are

accounts payable and cash payments.

sales revenue and cost of goods sold.

accounts receivable and cash receipts.

accounts receivable and accounts payable

Question 7

In a cash payments journal, all column totals are posted at the end of the period to the general ledger.

True

False

Question 8

Match the items below by selecting the appropriate number in the space provided.

A general ledger account which summarizes detailed information in a subsidiary ledger.
Benefits of information must exceed the cost of providing it.
The accounting system should accommodate a variety of users.
Software programs that integrate various accounting functions.
Group of accounts with a common characteristic which provides detailed information.
Collects and processes transaction data and communicates financial information.
Integrate all aspects of the organization, including accounting, sales, and manufacturing.
Used to record high volume, similar type transactions.
Transactions are journalized and posted by hand.
A subsidiary ledger that contains individual customer accounts.

1.	Cost effectiveness
2.	Enterprise resource planning systems
3.	General ledger accounting system
4.	Manual accounting system
5.	Special journals
6.	Subsidiary ledger
7.	Control account
8.	Accounts receivable ledger
9.	Accounting information system
10.	Flexibility

Question 9

The Sarbanes-Oxley Act requires that all major U.S. corporations

maintain a petty cash fund.

maintain an adequate system of internal control.

prepare bank reconciliations monthly.

must file reports with the National Commission on Fraudulent Financial Reporting.

Question 10

Few internal control systems provide for independent internal verification.

True

False

Question 11

Bonding employees who handle cash is an example of

segregation of duties.

independent internal verification.

human resource controls.

documentation procedures.

Question 12

An internal auditor reconciling the bank statement monthly is an example of

independent internal verification.

segregation of duties.

establishment of responsibility.

documentation procedures

Question 13

A credit balance in Cash Over and Short is reported as a(n)

asset.

miscellaneous revenue.

liability.

miscellaneous expense.

Question 14

A bank issues a debit memorandum when it collects a note receivable for a depositor.

True

False

Question 15

A company records each reconciling item used to determine the adjusted cash balance per books.

True

False

Question 16

Match the items below by selecting the appropriate number in the space provided.

Segregation of duties.
One to whom a check is payable.
Two or more employees circumventing prescribed procedures.
Prevent a transaction from being recorded more than once.
Checks which have been returned by the maker's bank for lack of funds.
Checks which have been paid by the depositor's bank.
Indicates those people authorized to sign checks.
Anything that a bank will accept for deposit.
Mechanical and electronic control devices.
One who issues a check.
Insurance protection against misappropriation of assets.
An extensive network of approvals by authorized individuals.
Document indicating the purpose of a petty cash expenditure.
Issued checks that have not been paid by the bank.
Highly liquid investments.

1.	Prenumbered documents
2.	Custody of an asset should be kept separate from the record-keeping for that asset
3.	Cash registers, garment sensors and burglar alarms are examples
4.	Bonding employees
5.	Collusion
6.	Cash
7.	Bank signature card
8.	Payee
9.	Maker
10.	Canceled checks
11.	NSF checks
12.	Outstanding checks
13.	Petty cash receipt
14.	Cash equivalents
15.	Voucher system

Question 17

Interest is usually associated with

bad debts.

accounts receivable.

notes receivable.

doubtful accounts

Question 18

A seller may encourage early payment by

offering a discount for early payment.

all of the answer choices are correct.

reducing the balance due.

offering free merchandise.

Question 19

The percentage-of-receivables basis results in a better matching of expenses with revenues than the percentage-of-sales basis.

True

False

Question 20

Retailers consider sales from the use of national credit cards as credit sales.

True

False

Question 21

To determine the maturity date of a note, you need to include the date the note is issued but omit the due date.

False

True

Question 22

When a note is accepted to settle an open account, Note Receivable is debited for the

accounts receivable balance.

face value plus interest.

net realizable value.

maturity value.

Question 23

Short-term notes receivable

have a related allowance account called Allowance for Doubtful Notes Receivable.

present the same valuation problems as long-term notes receivables.

are reported at their gross realizable value.

use the same estimations and computations as accounts receivable to determine cash realizable value.

Question 24

Match the items below by selecting the appropriate number in the space provided.

A written promise to pay a specified amount on demand or at a definite time.
Sales that involve the customer, the retailer, and the credit card issuer.
Emphasizes the matching of costs and revenues in the same period.
Amounts owed by customers from the sale of goods and services.
A note which is not paid in full at maturity.
Analysis of customer account balances by length of time they have been unpaid.
Emphasizes expected cash realizable value of accounts receivable.
Generally not acceptable for financial reporting purposes.
The amount of time that a receivable is outstanding.
Sale of accounts receivable to a factor.

1.	Aging of receivables
2.	Direct write-off method
3.	Promissory note
4.	Trade receivables
5.	Percentage of sales basis
6.	Percentage of receivables basis
7.	Factoring
8.	Dishonored note
9.	Average collection period
10.	Credit card sales
Question 25

The cost of equipment consists of the cash purchase price, freight charges, motor vehicle licenses and accident insurance on company vehicles.

True

False

Question 26

The units-of-activity method can be used for airplanes, buildings, and furniture.

True

False

Question 27

Ordinary repairs are

debited to an appropriate asset account when they increase useful life.

debited to Accumulated Depreciation when they do not increase useful life.

costs incurred to increase the operating efficiency or useful life of a plant asset.

referred to as revenue expenditures

Question 28

If disposal of a plant asset occurs during the year, depreciation is

not recorded for the year.

recorded for the fraction of the year to the date of the disposal.

not recorded if the asset is scrapped.

recorded for the whole year.

Question 29

Depletion expense is computed by multiplying the depletion cost per unit by the

number of units extracted.

total estimated units.

total actual units.

number of units sold.

Question 30

Goodwill is the excess of cost over the fair value of the net assets acquired.

True

False

Question 31

Which of the following would not be reported under the classification of Property, Plant, and Equipment?

Patents

Buildings

Timberlands

Land

Question 32

An asset that cannot be sold individually in the market place is

a copyright.

goodwill.

a trade name.

a patent.

Question 33

Natural resources are generally shown on the balance sheet under

Property, Plant, and Equipment.

Owner's Equity.

Intangibles.

Investments.

Question 34

Match the items below by selecting the appropriate number in the space provided.

Small expenditures which primarily benefit the current period.
Cost less accumulated depreciation.
An accelerated depreciation method used for financial statement purposes.
Tangible resources that are used in operations and are not intended for resale.
Equal amount of depreciation each period.
Expected cash value of the asset at the end of its useful life.
Allocation of the cost of a plant asset to expense over its useful life.
Material expenditures which increase an asset's operating efficiency, productive capacity, or useful life.
An accelerated depreciation method used for tax purposes.
Useful life is expressed in terms of units of production or expected use.

1.	Plant assets
2.	Depreciation
3.	Book value
4.	Salvage value
5.	Straight-line method
6.	Units-of-activity method
7.	Double-declining-balance method
8.	MACRS
9.	Revenue expenditure
10.	Capital expenditure

Question 35

Match the items below by selecting the appropriate number in the space provided.

Process of allocating the cost of an intangible asset to expense over its useful life.
Is only recorded when an exchange has commercial substance.
Examples are franchises and licenses.
The allocation of the cost of a natural resource to expense over its useful life.
Can be identified only with a business as a whole.
A symbol that identifies a particular enterprise or product.
When book value of asset is greater than the proceeds received from its sale.
Must be expensed when incurred.
Indicates how efficiently a company is able to generate sales with its assets.
An estimate of the expected productive life of an asset.

1.	Gain on disposal
2.	Loss on disposal
3.	Trademark
4.	Depletion
5.	Useful life
6.	Asset turnover
7.	Goodwill
8.	Amortization
9.	Intangible asset
10.	Research and development costs

SHOW YOUR WORK!!!! Unless instructed otherwise, round your answers to 2 decimal places (i.e., 2,123.76).

1. (5 points) Lonnie Company has a balance in its Accounts Receivable control account of $11,018 on January 1, 2014. The subsidiary ledger contains three accounts: Hulk Company, balance $4,405; Flash Company, balance $2,560; and Freeze Company. During January, the following receivable-related transactions occurred.

	Credit Sales	Collections	Returns
Hulk Company	$8,602	$7,706	$ -0-
Flash Company	6,967	2,658	3,339
Freeze Company	8,324	9,498	-0-

a. What is the January 1 balance in the Freeze Company subsidiary account?

b. What is the January 31 balance in the control account?

c. Compute the balances in the subsidiary accounts at the end of the month.

i. Hulk

ii. Flash

iii. Freeze

2. (6 points) Fraud experts often say that there are three primary factors that contribute to employee fraud. Identify the three factors and explain what is meant by each.

3. (6 points) Setterstrom Company established a petty cash fund on May 1, cashing a check for $110.00. The company reimbursed the fund on June 1 and July 1 with the following results.

June 1: Cash in fund $3.00.		Receipts: delivery expense $31.00; postage expense $36.25; and miscellaneous expense $37.65.
July 1: Cash in fund $5.75.		Receipts: delivery expense $24.00; entertainment expense $46.25; and miscellaneous expense $34.00.

On July 10, Setterstrom increased the fund from $110.00 to $140.00. Prepare journal entries for Setterstrom Company.

4. (6 points) Westside Textiles decides to sell $800,000 of its accounts receivable to First Factors Inc. First Factors assesses a service charge of 3% of the amount of receivables sold. Prepare the journal entry that Westside Textiles makes to record this sale.

5. (4 points) Gonzalez Company has been in business several years. At the end of the current year, the ledger shows:

Accounts Receivable		$ 327,800 Dr.
Sales Revenue		2,909,400 Cr.
Allowance for Doubtful Accounts		5,790 Cr.

Bad debts are estimated to be 8% of receivables. Prepare the entry to adjust Allowance for Doubtful Accounts.

6. (3 points) Gentry Wholesalers accepts from Benton Stores a $13,750, 4-month, 12% note dated May 31 in settlement of Benton’s overdue account.

a. What is the maturity date of the note?

b. What is the entry made by Gentry at the maturity date, assuming Benton pays the note and interest in full at that time?

7. (2 points) The following expenditures were incurred by McCoy Company in purchasing land: cash price $86,560, accrued taxes $3,090, attorneys’ fees $2,610, real estate broker’s commission $2,220, and clearing and grading $3,580. What is the cost of the land?

8. (3 points) What are some examples of land improvements?

9. (2 points) What is salvage value?

10. (4 points) Corales Company acquires a delivery truck on January 1, 2014 at a cost of $50,400. The truck is expected to have a salvage value of $11,200 at the end of its 5-year useful life. Prepare the entry to record 2014 depreciation.

11. (9 points) Rottino Company purchased a new machine on October 1, 2014, at a cost of $145,800. The company estimated that the machine will have a salvage value of $10,200. The machine is expected to be used for 10,200 working hours during its 5-year life.

a. Compute the depreciation expense under straight-line method for 2014. (Round answer to 0 decimal places, e.g. 2,125.)

b. Compute the depreciation expense under units-of-activity for 2014, assuming machine usage was 1,600 hours.

c. Compute the depreciation expense under declining-balance using double the straight-line rate for 2014 and 2015.

12. (10 points) Gunkelson Company sells equipment on September 30, 2014, for $20,530 cash. The equipment originally cost $71,350 and as of January 1, 2014, had accumulated depreciation of $41,020. Depreciation for the first 9 months of 2014 is $5,040. Prepare the journal entries to (a) update depreciation to September 30, 2014, and (b) record the sale of the equipment.

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