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Accounting Principles and Internal Controls, Exams of Business Economics

University of MarylandBusiness Economics

A wide range of accounting principles and internal control concepts, including changes in accounting methods, consistency, gross profit rate, promissory notes, adjusting entries, trial balances, cost of goods sold, earnings per share, factoring, financial statements, cash receipts and disbursements, inventory costing methods, revenue recognition, and internal control activities. Definitions, explanations, and examples related to these accounting topics, which are fundamental to understanding financial reporting and maintaining effective internal controls within an organization. The information presented could be useful for students studying accounting, finance, or business management at the university level, as it covers core concepts that are essential for understanding and applying accounting principles and practices.

Typology: Exams

2023/2024

Available from 08/08/2024

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ACG 2024- Final Exam Review Solved 100%
A certain company debited prepaid insurance when it paid for a one-year insurance
policy. If the company does not record any year-end adjusting entries then - ANS-
stockholders' equity would be overstated.
A company can change to a new method of accounting if management can justify that
the new method results in - ANS-more meaningful financial information
A company using the same accounting principles and the same accounting methods
from one year to the next year is an application or example of - ANS-consistency
A company's gross profit rate is lower this year compared to the prior year. Which of the
following would not be a possible cause for this decline in the gross profit rate? - ANS-
the company began selling products with a higher markup
A promissory note will likely be used in all of the following settings except - ANS-when
the party making the note is a high risk creditor.
Accounts with normal credit balances include - ANS-liabilities and stockholders' equity
Adjusting entries are made to ensure that - ANS--revenues are recorded in the period in
which the performance obligation is satisfied.
-balance sheet and income statement accounts have correct balances at the end of an
accounting period.
Although steps are missing, which of the following lists steps of the accounting cycle in
their correct order? - ANS-Journalize the transactions, journalize the adjusting entries,
journalize the closing entries.
An account is a part of a company's financial information system and is described by all
except which one of the following? - ANS-an account is a source document
An office supply store has a cashier who is also the accounts receivable clerk for the
company. Which internal control principles is violated - ANS-segregation of duties
At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to
employees was omitted. Which of the following statements is true? - ANS-Liabilities at
the end of the year are understated.
At what amount is a short-term note receivable recorded on the issue date? - ANS-face
value
At what value are accounts receivable reported on the balance sheet? - ANS-net/cash
realizable value
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ACG 2024- Final Exam Review Solved 100%

A certain company debited prepaid insurance when it paid for a one-year insurance policy. If the company does not record any year-end adjusting entries then - ANS- stockholders' equity would be overstated. A company can change to a new method of accounting if management can justify that the new method results in - ANS-more meaningful financial information A company using the same accounting principles and the same accounting methods from one year to the next year is an application or example of - ANS-consistency A company's gross profit rate is lower this year compared to the prior year. Which of the following would not be a possible cause for this decline in the gross profit rate? - ANS- the company began selling products with a higher markup A promissory note will likely be used in all of the following settings except - ANS-when the party making the note is a high risk creditor. Accounts with normal credit balances include - ANS-liabilities and stockholders' equity Adjusting entries are made to ensure that - ANS--revenues are recorded in the period in which the performance obligation is satisfied. -balance sheet and income statement accounts have correct balances at the end of an accounting period. Although steps are missing, which of the following lists steps of the accounting cycle in their correct order? - ANS-Journalize the transactions, journalize the adjusting entries, journalize the closing entries. An account is a part of a company's financial information system and is described by all except which one of the following? - ANS-an account is a source document An office supply store has a cashier who is also the accounts receivable clerk for the company. Which internal control principles is violated - ANS-segregation of duties At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true? - ANS-Liabilities at the end of the year are understated. At what amount is a short-term note receivable recorded on the issue date? - ANS-face value At what value are accounts receivable reported on the balance sheet? - ANS-net/cash realizable value

Companies prepare various types of trial balances. Which trial balance lists all of a company's permanent and temporary accounts? - ANS-the adjusted trial balance Cost of goods sold - ANS-beginning inventory+purchases- ending inventory=cost of goods sold Debits increase - ANS-assets and decrease liabilities. Dividing net income minus preferred stock dividends by the average of common shares outstanding produces the following: - ANS-earnings per share During a given year, several parties examine the financial records of ABC Company. These parties include internal auditors, independent auditors, and Internal Revenue Service agents. Which of these parties are considered employees of ABC Company? - ANS-internal auditors earnings per share - ANS-earnings per share=net income-preferred dividends divided by average common share outstanding ending retained earnings - ANS-beginning retained earnings+net income-expenses- dividends=ending retained earnings factoring is a process of - ANS-selling accounts receivable at a discount to another party Factoring is the process of - ANS-selling accounts receivable at a discount to another party. Financial statements can be prepared directly from the - ANS-adjusted trial balance For which item below might a bank issue a credit memorandum to a depositor's account? - ANS-interest earned For which of the following might a bank issue a debit memorandum to a depositor's account? - ANS--NSF checks -monthly service charge gross profit - ANS-gross profit=net sales-cost of goods sold OR gross profit=net income+operating expenses gross profit ratio - ANS-gross profit ratio=gross profit/net sales Handy Inc. permits only designated personnel such as cashiers to handle cash receipts. What principle is being applied? - ANS-establishment of responsibility

Paying for a one-year insurance policy that will expire next year - ANS-increases assets and decreases assets Payments from customers received before performing services for the customers are recorded as - ANS-liabilities posting transfers - ANS-journal entry amounts to ledger accounts profit margin - ANS-profit margin=net income/net sales Reporting which one of the following allows analysts to make adjustments to compare companies using different cost flow methods? - ANS-LIFO reserve The effects of a receipt of cash in advance from a customer on the basic accounting equation are to - ANS-increase assets and increase liabilities The ending balance of the Retained Earnings account appears on - ANS-both the retained earnings statement and the balance sheet The generally accepted accounting principle which dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied is the - ANS- revenue recognition principle Transactions are initially recorded in chronological order in a __________ before they are transferred to the accounts. - ANS-journal Under which of the following do computer programs that limit unauthorized access to certain files fall? - ANS-physical controls What does a general ledger of a company contain? - ANS-All the asset, liability, stockholders' equity, revenue, expense, and dividend accounts What is often the most critical part of managing receivables? - ANS-Determining who gets credit and who does not get credit What is the primary accounting standard-setting body in the United States? - ANS- Financial Accounting Standards Board What is the underlying rationale for the lower-of-cost-or-market rule? - ANS- conservatism What journal entry is recorded as a result of issuing stock to investors for cash? - ANS- A debit to Cash and a credit to Common Stock What type of account is Sales Returns and Allowances? - ANS-contra revenue account

What type of account or account classification is Cost of Goods Sold? - ANS-expense What type of receivables result from sales transactions? - ANS-trade receivables When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain? - ANS-Two credits and one debit When a trial balance balances, it is an indication that - ANS-debits equal credits When an uncollectible account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be debited in these two journal entries? - ANS-First Accounts Receivable and second Cash When is a physical inventory usually taken? - ANS-At the end of the company's fiscal year When is a receivable recorded by a merchandiser? - ANS-At the point of sale of the merchandise on account. When preparing a bank reconciliation, how are deposits in transit handled? - ANS- added to the bank balance When terms are FOB shipping point - ANS-ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments? - ANS-Going concern assumption Which financial statement is used by most corporations instead of the retained earnings statement? - ANS-Statement of stockholders' equity Which forms of business organization have owners called stockholders? - ANS- corporations Which inventory system will likely be used by a company with merchandise that has a high per unit value? - ANS-perpetual inventory system Which method will lead to the lowest net income when prices are rising? (LIFO or FIFO)

  • ANS-LIFO Which of the explicitly requires that all publicly traded companies must maintain adequate internal controls? - ANS-the Sarbanes-Oxley Act

Which of the following is not reported as a financing activity in the statement of cash flows? - ANS-buying equipment Which of the following is the correct sequence to report receivables on the balance sheet? - ANS-Accounts receivable, a 6-month note receivable, other receivables Which of the following pairs of accounts increase on opposite sides? - ANS-intangibles and bonds payable Which of the following should be included in the physical inventory of a company? - ANS-Goods shipped on consignment to another company Which of the following statements is correct regarding internal controls? - ANS-The person who has custody of assets should not perform the record keeping for the assets Which of the following statements is false with regards to record-keeping for bank reconciliations? - ANS-Deposits in transit do require a journal-entry once the bank reconciliation is completed. Which of the following was not a result of the Sarbanes-Oxley Act? - ANS-Companies must file financial statements with the Internal Revenue Service. Which of the following will not require an adjusting entry as a result of a bank reconciliation? - ANS-deposits in transit Which of these measures is an evaluation of a company's ability to pay current liabilities? - ANS-Both the current ratio and working capital Which of these statements about national credit card (e.g., Visa) sales is incorrect? - ANS-The retailer receives more cash when customers use national credit cards than when customers pay with cash instead of credit cards. Which of these transactions would cause the days in inventory ratio to increase the most? - ANS-Increasing the amount of inventory on hand and decreasing sales Which one of the following control activities is relevant when a company uses a computerized (rather than manual) accounting system? - ANS--Establishment of responsibility -Segregation of duties -Independent internal verification Which one of the following is a primary component of an internal control system? - ANS- monitoring Which one of the following is not a method used by companies to accelerate cash receipts? - ANS-writing off receivables

Which one of the following is not a physical control? - ANS-independent bank reconciliation Which one of the following is not a primary component of an internal control system? - ANS-rationalization Which one of the following is not one of the five basic issues in accounting for notes receivable? - ANS--determining the recipient -filing notes receivable Which one of the following is not one of the principles of internal control? - ANS- financial performance measures Which one of the following statements is true? - ANS-Bad Debts Expense is a temporary account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a permanent account and remains open at the end of the fiscal period. Which one of the statements below is true? - ANS-The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process. Which one of these statements about the accrual-basis of accounting is false? - ANS- Companies record revenue only when they receive cash, and record expense only when they pay out cash. Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the opposite manner? - ANS-dividends and retained earnings working capital formula - ANS-working capital=current assets-current liabilities