Question 1

Which of the following best describes the purpose of separating record-keeping duties from cash-handling duties in a business?

Accepted Answer

To reduce the risk of errors and fraud by implementing the internal control principle of separation of duties.

Question 2

A company discovers that an employee has been stealing cash receipts and covering it up by falsifying accounting records. This is an example of:

Accepted Answer

Misappropriation of assets

Question 3

Which of the following is NOT a component of the fraud triangle?

Accepted Answer

Planning

Question 4

A company’s bank reconciliation for October shows the following: Cash balance per books: $$3,540; Outstanding checks: 1$$,800; Deposit in transit: $$300; Bank statement balance: 5$$,570; Bank collection: $$600; Service charge: 30$$; Interest revenue: $$10; NSF check: 50. $$What is the adjusted cash balance at October 31?

Accepted Answer

$ 3,900

Question 5

Which of the following would require a journal entry when preparing a bank reconciliation?

Accepted Answer

Bank service charges

Question 6

A company uses the percent-of-sales method to estimate uncollectible accounts. If net credit sales are $$110,000 and 4% are estimated uncollectible, with an existing Allowance for Uncollectible Accounts credit balance of 3$$,000, what is the bad debt expense for the year?

Accepted Answer

$ 6,600

Question 7

Which law requires public companies to maintain strong internal control systems?

Accepted Answer

Sarbanes-Oxley Act

Question 8

A company receives a $2,800, 9%, four-month note receivable on March 1. What is the adjusting entry for interest revenue on March 31?

Accepted Answer

Credit Interest Revenue for $21

Question 9

If a company fails to accrue interest revenue on a note receivable at year-end, what is the effect on the financial statements?

Accepted Answer

Assets, net income, and stockholders' equity are understated.

Question 10

A company has the following balances: Cash $$4,000; Accounts Receivable 6$$,000; Inventory $$10,000; Prepaid Insurance 3$$,000; Short-term Investments $$2,000; Accounts Payable 14$$,000; Salary Payable $$3,000; Notes Payable (due in two years) 13$$,000. What is the quick ratio?

Accepted Answer

$$ \frac{4,000 + 6,000 + 2,000}{14,000 + 3,000} = 0.8 $$

Question 11

Winter Park Legal Association performs $1,000 of legal services on account with terms 1/10, n/30. If the customer pays within the discount period, what is the amount of cash received?

Accepted Answer

$ 990

Question 12

Birchwood Corporation began the year with $$600,000 in Accounts Receivable, had 1$$,600,000 in service revenue (all on account), and ended with $775,000 in Accounts Receivable. There were no bad-debt write-offs. How much cash was collected from customers?

Accepted Answer

$ 1,425,000

Question 13

A $20,000, 12%, six-month note is issued. What is the maturity value?

Accepted Answer

$ 21,200

Question 14

Which of the following is an example of poor internal control?

Accepted Answer

The mailroom clerk records daily cash receipts in the journal.

Question 15

Linus Company has net credit sales of $$110,000 and estimates 4% will be uncollectible. If the Allowance for Uncollectible Accounts has a 3$$,000 credit balance before adjustment, what is the new balance after recording bad debt expense?

Accepted Answer

$ 7,400

Question 16

On August 1, Lotore, Inc. accepted a six-month, 9%, $10,000 note receivable. How much interest revenue should be accrued at December 31?

Accepted Answer

$ 375

Question 17

Which of the following is NOT true about fraud?

Accepted Answer

Its damages must exceed a threshold of $150,000.

Question 18

A company’s Accounts Receivable has a debit balance of $$2,000 and Allowance for Uncollectible Accounts has a credit balance of 600. If a$$ $110 account is written off, what is the net realizable value of receivables after the write-off?

Accepted Answer

$ 1,510

Question 19

Which of the following is an example of a control procedure for cash received over the counter?

Accepted Answer

The customer should be able to see the amounts entered into the cash register.

Question 20

Washington Products offers credit terms of 3/10, n/45. Which statement is correct?

Accepted Answer

A discount of 3% can be taken if the invoice is paid within 10 days of the invoice date.

Financial Accounting Exam 2 Review: Step-by-Step Guidance

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