Financial Accounting Chapter 4 & 5 Review

Imagine a catering business named 'Delicious Bites' uses the gross method for recording its sales. What does this imply about how they handle discounts?

• Discount is recorded at the time of sale

• You cannot record using the gross method

• No discount will be recorded at the time of sale

• All of the above

Answer explanation

The correct choice implies that no discount will be recorded at the time of sale when using the gross method for recording sales.

InfoTech, a local tech company, receives an order for $400,000 of computers. When should revenue be recorded?

• When the invoice is mailed

• When customer places order

• When payment is received

• When the computers are delivered

Answer explanation

Revenue should be recorded when the computers are delivered as per the revenue recognition principle in accounting.

Imagine you're running a bookstore. How would you account for discounts in your financial records?

• Discounts are recorded if they are paid on time by customers.

• Discounts are recorded at the time of payment if it is expected that the customer will pay on time.

• Discounts are recorded at the time of sale, regardless of when the customer pays.

• Discounts are not recorded in the financial records.

Answer explanation

Discounts in a bookstore are recorded if they are paid on time by customers or at the time of payment if it is expected that the customer will pay on time, ensuring accurate financial records.

XYZ Corporation sells a batch of electronics on credit for $1,000 with terms 2/10, n/30. What does '2/10, n/30' mean?

• 2% discount if paid within 10 days, otherwise net amount due in 30 days.

• 10% discount if paid within 2 days, otherwise net amount due in 30 days.

• 2% discount if paid within 30 days, otherwise net amount due in 10 days.

• No discount is offered; full amount due in 30 days.

Answer explanation

2% discount if paid within 10 days, otherwise net amount due in 30 days.

Imagine you're running a bookstore. In your accounting books, what kind of account is Allowance for Doubtful Accounts?

• Contra-account

• Asset

• Liability

• Expense

Answer explanation

Allowance for Doubtful Accounts is a Contra-account, which offsets the Accounts Receivable account to show the estimated amount of uncollectible accounts.

Imagine a bookstore named 'PageTurners' had net sales amounting to $340,082 for the year, and their accounts receivable stood at $10,234 for the same period. What would be the Accounts Receivable turnover rate for 'PageTurners'?

• 33.23

• 3.00

• 0.03

• 3,480,399,188.00

Answer explanation

The Accounts Receivable turnover rate is calculated by dividing net sales by average accounts receivable. In this case, $340,082 / $10,234 = 33.23.

The owner of a company approaches his accounting team and threatens to fire them if they do not make the company's financial records look excellent for the company's next quarterly meeting. What kind of fraud is this?

• Pressure

• Rationalization

• Opportunity

Answer explanation

The correct choice is 'Pressure' because the owner is pressuring the accounting team to manipulate the financial records under threat of being fired.

At a local restaurant, servers are required to tally their sales at the end of their shifts. Managers then verify these sales totals at the close of the business day, and finally, the restaurant's accountant records these totals in the financial records. This process is an example of what control activity?

• Adequate documents and records

• Segregation of duties

• Checks on recorded amounts

• Safeguards over assets and records

Answer explanation

The correct choice is Segregation of duties because the process involves different individuals handling different aspects of the sales verification process to prevent fraud and errors.

A retail company mandates that all sales transaction records must be preserved for a duration of 36 months. What control activity does this policy exemplify?

• Adequate documents and records

• Segregation of duties

• Checks on recorded amounts

• Safeguards over assets and records

Answer explanation

The policy of preserving sales transaction records for 36 months exemplifies the control activity of 'Adequate documents and records.' This ensures proper documentation and record-keeping for compliance and audit purposes.

At Sunshine Bakery, the policy mandates that bank reconciliation journals are to be checked by two other accountants before being submitted and closed. What kind of control activity does this represent?

• Checks on recorded amounts

• Safeguards over assets and records

• Adequate documents and records

• Segregation of duties

Answer explanation

The policy of having bank reconciliation journals checked by two other accountants represents checks on recorded amounts as a control activity.