Q: Which formula correctly calculates Gross Profit?

$$\text{Gross Profit} = \text{Sales Revenue} - \text{COGS}$$

Q: Which formula is used to calculate the average cost per unit under the Average-Cost inventory method?

$$\text{Average Cost per Unit} = \frac{\text{Total Cost of Goods Available}}{\text{Total Units of Goods Available}}$$

Question 1

Which of the following best describes the three main components necessary for fraud to occur within an organization?

Accepted Answer

Motive, Opportunity, Rationalization

Question 2

A company records a deposit in its books, but the bank has not yet recorded it. What is this deposit called during a bank reconciliation?

Accepted Answer

Deposit in transit

Question 3

Which journal entry correctly records the sale of merchandise on account?

Accepted Answer

Dr. Accounts Receivable; Cr. Sales Revenue

Question 4

A customer returns merchandise. Which set of journal entries should the seller record?

Accepted Answer

Dr. Sales Returns and Allowances; Cr. Accounts Receivable; Dr. Inventory; Cr. Cost of Goods Sold

Question 5

If a company uses the allowance method to estimate bad debts, which journal entry is correct?

Accepted Answer

Dr. Bad Debt Expense; Cr. Allowance for Uncollectible Accounts

Question 6

Which formula correctly calculates Gross Profit?

Accepted Answer

$$	ext{Gross Profit} = 	ext{Sales Revenue} - 	ext{COGS}$$

Question 7

A company offers terms 2/10, n/30. If a customer pays within the discount period, which journal entry is correct?

Accepted Answer

Dr. Cash; Dr. Sales Discounts; Cr. Accounts Receivable

Question 8

Which inventory costing method assumes the oldest purchases are the first goods sold?

Accepted Answer

FIFO (First-In, First-Out)

Question 9

If ending inventory is understated, what is the effect on Cost of Goods Sold (COGS) and Net Income?

Accepted Answer

COGS is overstated; Net Income is understated

Question 10

Which formula is used to calculate the average cost per unit under the Average-Cost inventory method?

Accepted Answer

$$	ext{Average Cost per Unit} = \frac{	ext{Total Cost of Goods Available}}{	ext{Total Units of Goods Available}}$$

Question 11

A company purchases merchandise on account. Which journal entry should be recorded?

Accepted Answer

Dr. Inventory; Cr. Accounts Payable

Question 12

If a buyer returns damaged goods, what is the correct journal entry?

Accepted Answer

Dr. Accounts Payable; Cr. Inventory

Question 13

Under the lower-of-cost-or-market rule, if the net realizable value (NRV) of inventory is less than its recorded cost, what journal entry is required?

Accepted Answer

Dr. COGS; Cr. Inventory

Question 14

Which of the following is true regarding VISA and Mastercard sales?

Accepted Answer

They are considered cash sales

Question 15

A company uses the aging of accounts receivable method to estimate bad debts. What is the main principle behind this method?

Accepted Answer

The longer a receivable is past due, the less likely it is to be collectible

Question 16

Which of the following is a contra-revenue account with a normal debit balance?

Accepted Answer

Sales Discounts

Question 17

If a company pays for merchandise within discount terms after returning some goods, which journal entry is correct?

Accepted Answer

Dr. Accounts Payable (full amount minus returns); Cr. Inventory (discount amount); Cr. Cash (amount owed minus returns and discount)

Question 18

Which formula correctly calculates Cost of Goods Sold (COGS)?

Accepted Answer

$$	ext{COGS} = 	ext{Beginning Inventory} + 	ext{Purchases} - 	ext{Ending Inventory}$$

Question 19

Which inventory method would result in the highest COGS during a period of rising prices?

Accepted Answer

LIFO (Last-In, First-Out)

Question 20

A company issues a note receivable with an annual interest rate. Which formula calculates the interest earned after one year?

Accepted Answer

$$	ext{Interest} = 	ext{Principal} 	imes 	ext{Rate} 	imes 	ext{Time}$$

Internal Control, Receivables, and Inventory: Key Concepts and Applications

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