Exam 2 Review

The control features of a bank account do NOT include:

• having bank auditors verify the correctness of the bank balance per books

• minimizing the amount of cash that must be kept on hand.

• providing a double record of all bank transactions.

• safeguarding cash by using a bank as a depository.

Eddy Corporation had net revenue during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. What was the accounts receivable turnover?

• 4.0

• 5.3

• 6.4

• 8.0

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:

• Outstanding checks

• Deposit in transit

• A bank error

• Bank service charges

Which control principle does this represent? A Supervisor counts cash daily and reconciles the amount to the general ledger.

• Segregation of duties

• Independent verification

• Establishment of Responsibilities

• Documentation procedures

When there is a change in estimated depreciation:

• Previous depreciation should be corrected

• Current and future years' depreciation should be revised

• Only future years' depreciation should be revised

• None of the above

Permitting only designated personnel such as cashiers to handle cash receipts is an application of the principle of:

• Segregation of duties

• Establishment of responsibility

• Independent internal verification

• Human resource controls

Hughes Company has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its accounts receivable are uncollectible. In this situation, the amount of bad debt expense that should be reported for the year is:

• $5,000

• $55,000

• $60,000

• $65,000

Pral Corporation sells its goods on terms of 3/10, n/45. It has an accounts receivable turnover of 7. What is its average collection period?

• $2,555

• 30 times

• 52 days

• 210 days

Kant Enterprises purchased a truck for $11,000 on January 1, 2021. The truck will have an estimated salvage value of $1,000 at the end of 5 years. If you use the units-of-activity method, the balance in accumulated depreciation at December 31, 2022, can be computed by the following formula:

• ($11,000 ÷ 5) x Current usage for 2022.

• ($10,000 ÷ Total estimated activity) x Current usage for 2022.

• ($11,000 ÷ Useful life in years) x 2

• ($10,000 ÷ Total estimated activity) x Current usage for 2021 and 2022.

Lady LLC has a computer, which was originally purchased for $1350. They have had this computer for 3 years, with an accumulated depreciation of $810. If they sold the asset today for $500, they would recognize:

• Gain of $40

• Loss of $40

• Gain of $60

• Loss of $60