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

$$\text{Debit: Miscellaneous Expense }\quad 20 \\ \text{Credit: Cash }\quad 20$$

Q: If Apple, Inc. sells 30,000 iPhones at $100 each on account, what is the correct journal entry to record the sale?

$$\text{Debit: Accounts Receivable }\quad 3,000,000 \\ \text{Credit: Sales Revenue }\quad 3,000,000$$

Q: A company estimates that 1% of its $200 million sales will be returned. What is the journal entry to record estimated sales returns?

$$\text{Debit: Sales Returns and Allowances }\quad 2,000,000 \\ \text{Credit: Sales Refunds Payable }\quad 2,000,000$$

Q: If a company uses the percent-of-sales method and estimates uncollectible accounts expense as 0.0002 of total revenues of $394,328 million, what is the expense recorded?

$$394,328 \times 0.0002 = 79$$ million

Q: A company has beginning inventory of $$100 (10 units @ 10$$), purchases of $$350 (25 units @ 14$$), and $$450 (25 units @ 18). If 40 $$units are sold using FIFO, what is the cost of goods sold?

$$10 \times 10 + 25 \times 14 + 5 \times 18 = 100 + 350 + 90 = 540$$

Question 1

Which of the following is NOT one of the three elements of the Fraud Triangle as depicted in Exhibit 4-1?

Accepted Answer

Accountability

Question 2

According to Exhibit 4-3, what is the primary function of an internal control system?

Accepted Answer

To protect company assets from fraud, waste, and inefficiency

Question 3

Which of the following is an example of a control procedure under the internal control system?

Accepted Answer

Separation of duties

Question 4

A company receives checks by mail. According to Exhibit 4-6, which department should be responsible for preparing the deposit ticket?

Accepted Answer

Treasurer

Question 5

Which document is NOT typically included in a payment packet for internal control over purchases and payments?

Accepted Answer

Sales Receipt

Question 6

Which of the following is a limitation of internal controls?

Accepted Answer

They can be circumvented by collusion

Question 7

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

Accepted Answer

$$	ext{Debit: Miscellaneous Expense }\quad 20 \ 	ext{Credit: Cash }\quad 20$$

Question 8

Under GAAP, when should revenue be recognized?

Accepted Answer

When goods are delivered or services performed

Question 9

If Apple, Inc. sells 30,000 iPhones at $100 each on account, what is the correct journal entry to record the sale?

Accepted Answer

$$	ext{Debit: Accounts Receivable }\quad 3,000,000 \ 	ext{Credit: Sales Revenue }\quad 3,000,000$$

Question 10

A company estimates that 1% of its $200 million sales will be returned. What is the journal entry to record estimated sales returns?

Accepted Answer

$$	ext{Debit: Sales Returns and Allowances }\quad 2,000,000 \ 	ext{Credit: Sales Refunds Payable }\quad 2,000,000$$

Question 11

Which method is considered the best for measuring uncollectible accounts expense under GAAP?

Accepted Answer

Allowance method

Question 12

If a company uses the percent-of-sales method and estimates uncollectible accounts expense as 0.0002 of total revenues of $394,328 million, what is the expense recorded?

Accepted Answer

$$394,328 	imes 0.0002 = 79$$ million

Question 13

Which inventory costing method results in the lowest taxable income when costs are rising?

Accepted Answer

LIFO

Question 14

A company has beginning inventory of $$100 (10 units @ 10$$), purchases of $$350 (25 units @ 14$$), and $$450 (25 units @ 18). If 40 $$units are sold using FIFO, what is the cost of goods sold?

Accepted Answer

$$10 	imes 10 + 25 	imes 14 + 5 	imes 18 = 100 + 350 + 90 = 540$$

Question 15

Which inventory method provides the most up-to-date inventory cost on the balance sheet?

Accepted Answer

FIFO

Question 16

The lower-of-cost-or-market (LCM) rule requires inventory to be reported at:

Accepted Answer

The lower of historical cost or market value

Question 17

If a company’s cost of goods sold is $$600,000 and average inventory is 150$$,000, what is the inventory turnover ratio?

Accepted Answer

$$\frac{600,000}{150,000} = 4$$

Question 18

Which of the following best describes the effect of a LIFO liquidation?

Accepted Answer

It shifts older, lower costs into cost of goods sold

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

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