Q: Which of the following is the correct formula for the quick (acid-test) ratio?

$$\text{Quick (acid-test) ratio} = \frac{\text{Cash and cash equivalents} + \text{Short-term investments} + \text{Net current receivables}}{\text{Total current liabilities}}$$

Question 1

Which of the following is NOT one of the three elements of the Fraud Triangle?

Accepted Answer

Accountability

Question 2

A company wants to improve its internal controls to prevent fraud, waste, and inefficiency. According to the internal control system, which of the following is NOT a primary function of internal controls?

Accepted Answer

Maximizing sales revenue

Question 3

Which of the following is an example of a control procedure designed to ensure the separation of duties?

Accepted Answer

One employee approves transactions, another records them, and a third handles the assets

Question 4

A company receives checks by mail. According to best practices for internal control over cash receipts, which department should be responsible for preparing the deposit ticket?

Accepted Answer

Treasurer

Question 5

Which of the following documents would NOT be included in a payment packet used to authorize payment for goods received?

Accepted Answer

Sales Receipt

Question 6

A company’s bank reconciliation shows a service charge of $20. What is the correct journal entry to record this on the company’s books?

Accepted Answer

Debit Miscellaneous Expense $$20; Credit Cash 20$$

Question 7

Apple, Inc. delivers 30,000 iPhones to AT&T Wireless for $100 each on account. What is the correct journal entry to record the sale?

Accepted Answer

Debit Accounts Receivable $$3,000,000; Credit Sales Revenue 3$$,000,000

Question 8

If Apple’s cost to produce each iPhone is $60, what is the correct journal entry to record the cost of goods sold for 30,000 iPhones?

Accepted Answer

Debit Cost of Goods Sold $$1,800,000; Credit Inventory 1$$,800,000

Question 9

Apple estimates that 1% of its $200 million sales revenue will be returned. What is the correct amount to record as Sales Returns and Allowances?

Accepted Answer

$2,000,000

Question 10

Under the percent-of-sales method, if Apple’s total revenues are $394,328 million and the estimated uncollectible rate is 0.0002, what is the uncollectible-account expense?

Accepted Answer

$79,000,000

Question 11

Which of the following best describes the difference between the percent-of-sales and aging-of-receivables methods for estimating uncollectible accounts?

Accepted Answer

Percent-of-sales adjusts the allowance by the amount of uncollectible-account expense; aging-of-receivables adjusts the allowance to the amount of uncollectible accounts receivable.

Question 12

A company writes off an uncollectible account of $$9 million for customer RS and 3 $$million for customer TM. What is the correct journal entry?

Accepted Answer

Debit Allowance for Uncollectible Accounts $$12 million; Credit Accounts Receivable—RS 9 $$million; Credit Accounts Receivable—TM $3 million

Question 13

Which inventory costing method results in the lowest cost of goods sold and highest gross profit when inventory costs are rising?

Accepted Answer

FIFO

Question 14

When inventory costs are decreasing, which method results in the highest ending inventory value?

Accepted Answer

LIFO

Question 15

A company using LIFO during a period of rising prices will most likely:

Accepted Answer

Report lower taxable income

Question 16

Which of the following is the correct formula for the quick (acid-test) ratio?

Accepted Answer

$$	ext{Quick (acid-test) ratio} = \frac{	ext{Cash and cash equivalents} + 	ext{Short-term investments} + 	ext{Net current receivables}}{	ext{Total current liabilities}}$$

Question 17

A company has net credit sales of $$500,000 and average net accounts receivable of 50$$,000. What is the accounts receivable turnover ratio?

Accepted Answer

$$\frac{500,000}{50,000} = 10$$

Question 18

If a company’s cost of goods sold is $$600,000, beginning inventory is 100$$,000, and ending inventory is $200,000, what is the inventory turnover ratio?

Accepted Answer

$$\frac{600,000}{(100,000 + 200,000) / 2} = 4$$

Question 19

Under the lower-of-cost-or-market (LCM) rule, inventory should be reported on the balance sheet at:

Accepted Answer

The lower of historical cost or market value

Internal Control, Receivables, and Inventory: Study Guide for Financial Accounting

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