Exam 3

Question 1

Internal controls definition/purpose

Answer 1

Monitor and control business activities
1. Protect assets
2. Ensure reliable accounting
3. Uphold company policies
4. Promote efficient operations

Question 2

Internal control principles

Answer 2

1. Establish responsibilities
2. Maintain adequate records
3. Insure assets and bond key employees
4. Separate record keeping from custody of assets
5. Divide responsibility for related transactions
6. Apply technological controls
7. Perform regular and independent reviews

Question 3

Fraud triangle

Answer 3

Opportunity, pressure, and rationalization

Question 4

Cash over and short: Overage entry

Answer 4

Debit Cash 555
Credit COAS 5
Credit Sales 550

Question 5

Cash over and short: shortage entry

Answer 5

Debit Cash 621
Debit COAS 4
Credit Sales 625

Question 6

Voucher system

Answer 6

1. Verifying, approving, and recording liabilities for eventual cash payments
2. Issuing checks for payment of verified, approved, and recorded liabilities

Question 7

Establish petty cash entry

Answer 7

Debit Petty Cash
Credit Cash

Question 8

Reimburse petty cash entry

Answer 8

Debit inventory/expenses
Credit Cash

Question 9

Increase and decrease petty cash fund

Answer 9

Debit Petty Cash, credit cash
Or
Debit cash, credit petty cash

Question 10

Cash equivalents

Answer 10

Short-term, highly liquid investments that are readily convertible to a cash amount and close to maturity date and not sensitive to changes

Question 11

Bank reconciliation definition

Answer 11

Prepared periodically to explain difference between cash reported on the bank statement and the cash balance on company’s books

Only books side needs adjustment

Question 12

Bank balance adjustments

Answer 12

+ deposits in transit
- outstanding checks
+- corrections of bank errors

Question 13

Book balance adjustments

Answer 13

+ interest earned and unrecorded cash receipts
- bank fees and NSF checks
+- corrections of book errors

Question 14

Deposits in transit

Answer 14

Deposits made and recorded in depositors books but not yet listed on bank statement

Question 15

Outstanding checks

Answer 15

Checks written by the depositor, subtracted on the depositors books, and sent to the payees but not yet turned in for payment at the bank statement due

Question 16

Factoring

Answer 16

Selling receivables
Debit cash
Debit factoring fee
Credit AR

Question 17

Direct write off method of AR

Answer 17

Debit BDE
Credit AR

Question 18

Direct write off method- recovering bad debt

Answer 18

Debit AR
Credit BDE

Debit Cash
Credit AR

Question 19

Allowance method recording BDE + writing off a BD entries

Answer 19

Debit BDE
Credit Allowance for Doubtful Acc

Debit Allowance for Doubtful Acc
Credit Acc Receivable- J Kent

Question 20

Allowance method: recover bad debt entries

Answer 20

Debit Acc Receivable- J Kent
Credit Allowance

Debit Cash
Credit Acc Receivable- J Kent

Question 21

% of sales method

Answer 21

affects income statement, BDE
Bad debts expense=current period sales*BD%

Question 22

% of AR method

Answer 22

Affects balance sheet, allowance

T account:
Allowance credit or debit
+Adjusting amount
=uncollectable AR

Adjusting entry:
Debit BDE
Credit Allowance

Question 23

Aging of AR

Answer 23

Classify each by how long past due, each age group x BD%, BD for each group totaled
Adjusting entry same as % of AR

Question 24

Remembering days of months

Answer 24

Knuckle- 31
Middle- 30
Feb- 28

Question 25

Interest calculation

Answer 25

Principal x Rate x Days/360

Question 26

Record notes receivable

Answer 26

Debit Notes Receivable
Credit Sales

Question 27

Honored note entry

Answer 27

Debit Cash
Credit Notes Rec
Credit Interest Rev

Question 28

Dishonored note entry

Answer 28

Debit Acc Rec
Credit Int Rev
Credit Notes Rec

Question 29

End of period interest adjustment

Answer 29

Debit int rec
Credit int rev

Question 30

Record collection of note at maturity entry

Answer 30

Debit Cash 3060
Credit Int Rev 45
Credit Int Rec 15
Credit Notes Rec 3000

Question 31

Depletion definition/formula

Answer 31

The process of allocating the cost of a natural resource to the period when it is consumed
Depletion expense=depletion per unit x Units extracted and sold in period

Question 32

Amortization definition

Answer 32

Intangible asset with limited life is expensed

Question 33

General depreciation definition/formula

Answer 33

The process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use
Cost-salvage/useful life
If partial year: * (x/12)

Question 34

Straight line depreciation formula

Answer 34

General or
per unit:
Dep per unit= c-s/total units
Dep expense=dep per unit x # in period

Question 35

Declining balance method steps:

Answer 35

1. Straight line rate=100%/useful life
2. DDB rate=2 x SLR
3. Dep expense=DDB rate x beginning period book value

Question 36

Change in estimates for long term assets

Answer 36

Book value-revised salvage/revised remaining useful life

Question 37

Discarding plant asset not fully depreciated entries

Answer 37

Update dep. expense then

Debit Acc Dep
Debit Loss on disposal
Credit Equipment

Question 38

Selling plant asset at book value entries

Answer 38

Update Dep Expense then

Debit Cash
Debit Acc Dep
Credit Equipment

Question 39

Selling plant asset above book value entries

Answer 39

Update Dep Expense then

Debit Cash
Debit Acc Dep
Credit Gain on disposal
Credit Equipment

Question 40

Selling plant asset below book value

Answer 40

Update dep expense then

Debit Cash
Debit Loss on disposal
Debit Acc dep
Credit equipment

Question 41

AR turnover formula

Answer 41

AR turnover=net sales/average AR, net

Question 42

Total asset turnover formula

Answer 42

TA turnover=net sales/average TA

Question 43

Days’ Sales Uncollected formula

Answer 43

DSU=AR/net sales * 365