Multiple Choice Answers

The balance of a control account in the general ledger
must equal the composite balance of individual accounts in a related subsidiary ledger.
must always be zero.
is always greater than the composite balance of individual accounts in a related subsidiary ledger.
must equal the amount of total assets.

The Sarbanes-Oxley Act of 2002 (SOX) requires that all U.S. corporations under the juris-diction of the Securities and Exchange Commission
maintain an adequate system of internal control.
have at least one foreign subsidiary.
maintain accounting records of foreign branches and subsidiaries in the local foreign currency.
must file reports with the National Commission on Fraudulent Financial Reporting.

Holliday Company’s inventory records show the following data:
Units
Unit Cost
Inventory, January 1
5,000
$9.00
Purchases: June 18
4,500
8.00
November 8
3,000
7.00
A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for $12 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method.
Under the FIFO method, the December 31 inventory is valued at
$18,000.
$15,000.
$14,500.
$14,000.
A $100 petty cash fund has cash of $15 and receipts of $80. The journal entry to replenish the account would include a credit to
Cash for $80.
Cash for $85.
Petty Cash for $85.
Cash Over and Short for $5.

Lee Industries had the following inventory transactions occur during 2010:
Units
Cost/unit
2/1/10
Purchase
18
$45
3/14/10
Purchase
31
$47
5/1/10
Purchase
22
$49
The company sold 51 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s gross profit using FIFO? (rounded to whole dollars)
$2,441
$2,365
$848
$772

Wright sells softball equipment. On November 14, they shipped $1,000 worth of softball uniforms to Paola Middle School, terms 2/10, n/30. On November 21, they received an order from Douglas High School for $600 worth of custom printed bats to be produced in December. On November 30, Paola Middle School returned $100 of defective merchandise. Wright has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the balance sheet as of November 30?
$1,000
$1,500
$900
$1,600

Two individuals at a retail store work the same cash register. You evaluate this situation as
a violation of establishment of responsibility.
a violation of segregation of duties.
supporting the establishment of responsibility.
supporting internal independent verification.

Kershaw Bookstore had 500 units on hand at January 1, costing $18 each. Purchases and sales during the month of January were as follows:
Date
Purchases
Sales
Jan.
14
375 @ $28
17
250 @ $20
25
250 @ $22
29
250 @ $32
Kershaw does not maintain perpetual inventory records. According to a physical count, 375 units were on hand at January 31.
The cost of the inventory at January 31, under the LIFO method is:
$7,750.
$1,000.
$6,750.
$8,000.

A company has an average inventory on hand of $40,000 and the days in inventory is 73 days. What is the cost of goods sold?
$400,000
$1,460,000
$200,000
$2,920,000

An aging of a company’s accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debts Expense for $9,000.
credit to Allowance for Doubtful Accounts for $9,000.
debit to Allowance for Doubtful Accounts for $7,900.
debit to Bad Debts Expense for $7,900.
The accountant at Reber Company has determined that income before income taxes amounted to $6,750 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $225 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption?
$6,975
$7,500
$6,090
$6,525

Which of the following is not an advantage of a subsidiary ledger?
Puts greater detail in the general ledger.
Makes possible a division of labor.
Helps locate errors in individual accounts.
Shows transactions affecting one customer or one creditor in a single account.

The use of special journals to record transactions
eliminates the need for a general ledger.
eliminates the need for a general journal.
can save time in the posting process.
should only be used if the volume of transactions is small.

 

Walker Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales during the year amounted to $2,000,000. The average collection period of the receivables in terms of days was
73 days.
365 days.
30 days.
146 days.

If a check correctly written and paid by the bank for $428 is incorrectly recorded on the company’s books for $482, the appropriate treatment on the bank reconciliation would be to
add $54 to the book’s balance.
deduct $428 from the book’s balance.
add $54 to the bank’s balance.
deduct $54 from the bank’s balance.

The current assets of Kile Company are $150,000. The current liabilities are $100,000. The current ratio expressed as a proportion is
$150,000 รท $100,000.
150%.
.67 : 1
1.5 : 1

Accounts Receivable and Accounts Payable are examples of
controlling accounts.
subsidiary ledger accounts.
nominal accounts.
both nominal accounts and controlling accounts.

Hahn Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Hahn Company make to record the bad debts expense?
Bad Debts Expense 20,000
Allowance for Doubtful Accounts 20,000
Bad Debts Expense 20,000
Accounts Receivable 20,000
Bad Debts Expense 25,000
Accounts Receivable 25,000
Bad Debts Expense 25,000
Allowance for Doubtful Accounts 25,000

A successful grocery store would probably have
low volume.
a high inventory turnover.
a low inventory turnover.
zero profit margin.

Richmond’s Wholesale uses a sales journal. An entry in this journal represents a
debit to Sales Discounts; credit to Cash.
debit to Accounts Payable; credit to Sales Returns and Allowances.
debit to Cash; credit to Sales.
debit to Accounts Receivable; credit to Sales.

In the month of November, Coler Company Inc. wrote checks in the amount of $9,250. In December, checks in the amount of $12,658 were written. In November, $8,468 of these checks were presented to the bank for payment, and $10,883 were presented in December. What is the amount of outstanding checks at the end of November?
$3,550
$1,775
$2,557
$782

On February 1, Platt Company received a $9,000, 10%, four-month note receivable. The cash to be received by Platt Company when the note becomes due is
$300.
$9,900.
$9,000.
$9,300.

Gold Clothing Store had a balance in the Accounts Receivable account of $820,000 at the beginning of the year and a balance of $880,000 at the end of the year. Net credit sales during the year amounted to $7,650,000. The receivables turnover ratio was
9.3 times.
8.7 times.
9.0 times.
4.5 times.

Widner Company understated its inventory by $10,000 at December 31, 2010. It did not correct the error in 2010 or 2011. As a result, Widner’s owner’s equity was:
overstated at December 31, 2010, and overstated at December 31, 2011.
understated at December 31, 2010, and properly stated at December 31, 2011.
understated at December 31, 2010, and understated at December 31, 2011.
understated at December 31, 2010, and overstated at December 31, 2011