Quiz #3

Question 1

Which piece of the fraud triangle relates to an employee who purchased too many Lululemon outfits, shoes, and Starbucks lattes and therefore has massive amounts of credit card debt?

Answer 1

Motivation

Question 2

What four things resulted from the Sarbanes-Oxley Act?

Answer 2

1. A requirement to rotate the lead auditor every five years
2. A requirement to issue an internal controls audit report
3. Creation of the Public Company Accounting Oversight Board
4. A requirement to issue signed certifications from the CEO and CFO regarding the accuracy of the financial statements

Question 3

Is an entry necessary when petty cash is used?

Answer 3

No

Question 4

A company previously established a petty cash fund with $1,000. When it’s time to replenish, the accountant finds receipts for $100 for supplies, $400 for meals, $200 for shipping, and cash of $380. The journal entry required when we replenish the fund would include:

Answer 4

a credit to Cash Short and Over for $80

Question 5

A company’s cash accountant is performing a bank reconciliation for the end of the month. The bank statement shows a service charge of $25. How should the accountant show this adjustment on the reconciliation?

Answer 5

A deduction from the book balance

Question 6

What three things are true of the direct write-off method?

Answer 6

1. It does not require estimates.
2. It typically overstates accounts receivable.
3. It likely leads to an overstatement of net income in the first year of operations.

Question 7

Which accounting method does FASB prefer?

Answer 7

Allowance method

Question 8

A company estimates that 8% of the year’s sales are uncollectible. If yearly sales were $200,000, the ending balance of accounts receivable was $40,000 and the unadjusted balance of allowance for uncollectible accounts was a credit of $1,500, what amount is recorded for uncollectible accounts expense at the end of the year?

Answer 8

200000 x 0.08 = $16,000

Question 9

A company estimates that 12% of the ending accounts receivables are uncollectible. If yearly sales were $200,000, the ending balance of accounts receivable was $40,000 and the unadjusted balance of allowance for uncollectible accounts was a credit of $1,000, what amount is recorded for uncollectible accounts expense at the end of the year?

Answer 9

40000 x 0.12 = 4800

4800 - 1000 = $3,800

Question 10

On November 1, Burton Industries accepts a six-month, $50,000 note receivable from Henry Longfellow. The note carries a 12% annual interest rate with interest calculated monthly. Burton prepares adjusting entries and financial statements each month. When the note reaches maturity on April 30th, what journal entry would Burton record?

Answer 10

Dr. Cash 53,000
Cr. Note Receivable 50,000
Cr. Interest Receivable 2,500
Cr. Interest Revenue 500