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Mini Test 1 Form A Solutions - l 2 3 Vet’Stofl 14’...

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Unformatted text preview: l. 2. 3. Vet’Stofl 14’ Jake Wilderness owns a Canadian based hunting lodge that runs guided hunting trips. His wife I[Iarol runs the hospitality side of the hunting business and a separate catering business. Jake and Carol personally borrowed $100,000 to use for a home remodeling project. The fact that this liability was not recorded on either the hunting lodge or the catering books is consistent witlt which principle, assumption or constraint included in your conceptual framework readings? A. The historical cost principle B. Materiality constraint The economic entity assumption D. The realization principle E. None of the above support the treatment of the liability As a faculty member at the University of Illinois l have the objective of maintaining an environment free of academic dishonesty. Which of the following items represents a risk that could most seriously threaten the achievement of this objective? A. The possibility that a student will fill in the wrong bubble on their scantron [i.e. bubble sheet}. E. The possibility of students arriving late to class and potentially distracting other students while they are taking their exam. @1' he possibility of an Accy 202 exam being taken by someone otherthan the registered student. D. Exam day procedures that include checking photo lD's on a test basis. E. All of the above represent risks that could threaten the objective being described. Explain how the following journal entry ultimately affects the accounting equation (Le. after all closing entri es]. Accounts Receivable $15,flflfl Service Fees Earned $5,000 A. Both assets and liabilities increase. E. Both assets and the income summary clearing account increase. @Both assets and equity increase. D. Assets increase and equity decreases. E. There is no change in the accounting equation Judy has hired a cleaning service. The owner of the cleaning service is aware that Judy has numerous antiques 8.: collectibles that are quite valuable. Although she follows selective hiring practices and trains her employees well, she is aware that there is always a chance that an employee could steal something while cleaning. Which of the following control procedures [AKA control activities) would be considered the strongest preventative control to address the risk being described? . Performing background checks on her employees before hiring B. Requiring employees to clean in pairs C. Deducting the cost of the broken item from the employees pay. D. Having a clear company policy against theft and requiring all employees to sign a document stating that they have read the policy and understand it. E. Because of the risk of collusion, Judy should not bother taking any sort of preventative effort. 5. The employees ofNeat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $3fl.flflfl. The current pay period ends on Friday, July 3rd. Neat Clothes is nov.r preparing quarterly financial statements for the three months ended June 3U. 1|What is the adjusting entry to record accrued salaries at the end ofJune'i' A. DEBIT CREDlT Salary expense 30.13130 Cash 3030-0 E. DEBIT CREDIT Salary expense ElJJIJIJ Cash ELEM-t] C. DEBIT CREDIT Salary expense ELIIII} Salaries Payable 9.000 D. EEEII EEEDII Salary Expense 2 LUCK] Salaries Payable 2 l,[|t'lt'.| E. DEBIT CREDIT Salaries Payable 2] find Salary Expense ELIJUI] 6. 1|Which of the following statement(s} is true‘? .spite the Fact that top management have little day—to—day interactions with the majority of employees top management‘s attitudes and actions can still enhance or detract from the control environment of the enterprise. E. I[flompanies with a strong internal control environment should design a control system that eliminates all risks identified as having m a high likelihood of occurrence and a hi gh impact. C. Jax Company has a longstanding relationship with a particular vendor and has a strong system of internal controls (similar to the ideal model we studied in class). Recently, the vendor has been experiencing financial hardship and began “shorting“ orders. Understanding the model we discussed in class, Jas's receiving department should be able to prevent this fraud simply by performing hlind counts on all incoming orders. D. All of the above E. B St. E are both true T. I'J'JThich of the following is an example of an economy risk? A. Unexpected competition fiom another industry B. An industry-wide cost increase 13 A fire at a manufacturing location that that stops production for a month. . A far reaching flu epidemic Both 11 and B B. For a business, a supplier A. is a company or individual that owns shares of the business. B. is a company or individual to whom the business sells goods or services. (Q provides goods and services used by the business D. makes loans to the company to help finance its activities. E. None of the above is correct. 9. A few years ago, Baker Corporation introduced a new product carrying a two-year warranty against defects. The total fiiture warranty cost are estimated to be 5% of sales. Based on past history and industry averages, filed claims are expected to be twice as common in the last twelve months of the contract than in the first twelve months. At the beginning of 1991 Baker had a $15,000 balance in its warranty obligation account representing the estimated cost of un filed warranty claims from sales made in 1989 3: 1990. Sales for the year ended December 31, 1991 were $200,000 and during 1991 the company incurred $5,000 of cost servicing actual claims filed during 1991. What amount should he reported as warranty expense for the year ended 12131191“? A $1} a. sauce @mnoo 121. $15,000 is. $211, one 10. In a well organised acquisitionfpayment process, the purchasing department handles which of the following source documents: [i] vendor invoices, {ii} purchase requisitions, (iii) purchase orders A. i and ii only 11%;) 11 and 111 only . i and iii only D. i, ii and iii E. none of the above source documents would be handled by the purchasing department. 11. When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes: A. A debit to a revenue and a credit to a liability account. E. A debit to a revenue and a credit to an asset account. C A debit to an asset and a credit to a revenue account. @A debit to a liability and a credit to a revenue account. . None of the above 12. A merchandising company (Le. retailer} A. Will always incur shipping costs on inventory purchases. E. Will expense sales tax incurred on inventory purchases (3. Typically has three different inventory accounts on its books, each of which relates to a particular tage of production. D. urchases inventory which requires very little additional processing before it can be turned around and sold. E. None of the above 13. An employee steals cash and makes a journal entry to cover up evidence of the theft. Which two duties should have been separated to prevent this problem? A. Custody of the asset and authorization of the transaction E. ustody of the asset and recording of the transaction . Authorization of' the transaction and recording of the transaction D. Authorization of the transaction and approval of the transaction E. Because collusion existed in this situation separating duties would not have helped to prevent it. 14. In our comprehensive problem. Bryan purchased two vans to be used on client visits. Assume the final negotiated price was $50.000 (i.e. $25,000 each] and that he financed 20% of the purchase and paid the balance in cash. Which of the Following entries would be made at the time that title of the vans was transferred in to the company‘s name? A. use Eradii Vehicles 50.000 Note Payable 40.000 Cash 10.000 13. Debit Credit Note Payable 10.000 Cash 40.000 1|r'ehieles 50.000 C. Debit Credit 1v'ehicles 40.000 Cash 10.000 Note Payable 50.000 D. n it gum 1it"ellicltcs 50.000 Note Payable 50.000 ED Debit Credit chielcs 50.000 Note Payable 10.000 Cash 40.000 IS. How will the vehicles described in the above problem be classified on the financial statements? A. Current Asset. Balance Sheet B. Current Asset, Income Statement (Don-current Asset. Balance Sheet D. Non-current Asset. Income Statement E. None of the above 16. Which of the following liabilities would most likely to be removed from the books (i.e. “settled") without a corresponding credit to cash? A. Wages Payable E. Accumulated Depreciation Interest earned but not received @ Uneamed Revenue E. At the time ofsettlement. all of the above liabilities would likely require a cash outlay. 1?. The amount of insurance expense reported on the income statement is A. the amount of cash paid for insurance in the current period. E. the amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period. . he amount of insurance used up (incurred) in the current period to help generate revenue. . an increase in net income. E. None of the above l8. Assume that on October 3Dth Bryan and Abigail paid the local radio station $3,flflfl representing payment in fitll for three months of advertising spots which began running on August 1st. Assume that they prepare proper accrual basis financial statements on a monthly basis as such any necessary adjusting entries have been made. The entry on October 3flth would include: A. a debit to advertising expense for $3.flflfl E. a debit to pre-paid advertising expense for $3,flflfl C. a credit to accounts payable for E l ,{i-D-D gredit to cash for $3.fli}{} one of the above would be included as part of the entry. 19. [in July 31st Hawthorne Manufacturing Company (the "seiler“) ships $IIJJJIJIJ worth of merchandise to a customer [i.e. the "buyer'"; FOE Destination. Hawthorne pays $5M] of shipping related to this sale. As part of the sales terms Hawthorne offers the customers a 1% cash discount if the sales price is paid within 1IJ days. If it is paid after the 10 day window Hawthorne expects that customers will pay the balance in hill within 2ft days. The merchandise is delivered to the customer on August 5th and payment is remitted by the customer on August 12th. How would this purchase discount be displayed on the documentation supporting the sale? a. tonnes s. NIELnfli] c lflil,ni‘2fl (p c. was . None of the above 2G. Continue using the Hawthorne Manufacturing Company facts previously provided. On what date would the purchased inventory be recorded by the buyer? . lst E. 5th C. Sillth D. Silfith E. scam 21. Continue using the Hawthome Manufacturing ISornpany facts previously provided. At the time of payment. how much cash will the buyer be expected to remit in order to settle the account in full? @sssee . $10,000 C. $10,395 o. $10,500 E. $10,400 22. 1|Which of the following statement[s} about a contingent liability is true? A. The act of recognizing a contingent liability on the financial statements would be considered a deferral type adjusting entry. B. When evaluating a contingent liability, only information that is available as of the balance sheet date y be taken in to consideration (Le. because we are taking a snapshot at this exact "point-in-time"). l C. i The rules surrounding the recognition of contingent liabilities are consistent with matching and conservatism and enhance the relevance of the financial statements. D. All liabilities recorded on the financial statements are considered contingent. E. C 3.: D are true 23. Assume Idaho Company recorded the following adjusting entry at year—end: If the beginning balance in prepaid insurance was $ 1 ,flflfl and $3,flt}{i was paid in advance for an insurance premium during the year, the ending balance in the prepaid insurance account {after the above adjusting entry) would be A. $ 1 .flfli} debit E. $ l,{l{l{l credit. {3. $2,000 credit. . $2,flflfl debit. . $4,000 debit 24. Carolina Mills purehases all of its supplies from Da Vinei eotporation and all purchases of supplies are made on account. ICarolina Mills reported the following activity for the year ended lifllflflfll Aeeeunts Payable Da 1|nr'inei Su Co ration fillflflll 25.0% ? ? ITSJIIUU EDUHIJU 25 ,Uflfl 53.090 Given the above aeeount aetivity, What was the amount of supplies expense reported for the year ended lifllflflfl’l? A. $25,000 13. 0501000 C. $l?5,flflfl n. $200,000 . 225,000 25. Please eheelc your seantron {i.e. huhhle sheet] and make sure that your test form is peneiled in as "'13 If it is not, please eorreet it. Dnee you have done this, bubble in “A“ to answer this question. ...
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