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Mini Test 1 Form B Solutions - t In a well organized...

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Unformatted text preview: t. In a well organized aequisiticnrpayment process. the purchasing department handles which el‘ the Fol lowing source documents: ti} purchase requisitions, tii} vendor invoices, {ii i} purchase orders A. i and ii only E. ii and iii only '. i and iii only l . i. ii and iii H. none ofthc above scarce documents would be handled by the purchasing department. 2. As a faculty member at the University of Illinois I have the objective of maintaining an environtnent free of acadetnic dishonesty. 1Which ofthe following control procedures {AKA control activities} would be considered a strong detective control that would help to achieve the described objective? r‘t. Spacing students every other seat during an examination. B. Having a clear course policy on academic integrity. Requiring all students to sign a document stating that they have read the policy and understand it. .. Writing and using inultiple versions ofeaeh exam. @ Exam day procedures that include randomly checking photo ID's. None of the above would be considered a strong detective control. 3. Assume Idaho Company recorded the following adjusting entry at year—end: Insurance Expense $10011} Prepaid Insurance flfifltl [f the beginning balance in prepaid insurance was $21091] and $3fltlfl was paid in advance for an insurance premium during the year. the ending balance in the prepaid insurance account {after the above adjusting entryl would be r't. Slit-til] debit E. S Itlflfl credit. C. Sfifllltl debit (E) ssncc debit. E. 15 I flflfltl debit 4. Which of the following liabilities would most likely to be removed from the books {i.e. "settled"] without a corresponding credit to eash'? A. Accumulated Depreciation l3. Wages Payable (pnearned Revenue . Interest earned bttt not neceived E. i‘tt the time ofsettlement. all oftlie above liabilities wottld likely 1equi1e a cash outlay. 5. A merehandising company {i.c. retailer] A. Will always incur shipping costs on inventory pureltases. l3. Typically has three different inventory accounts on its books, each of which relates to a particular stage of production. Q Will capitalize sales tax incurred on inventoryr purchases. D Purchases inventory which requires a substantial amount ofadditional processing before it can be turned around and sold. F.. Home of the above I5. An employee orders goods and has them delivered to his home address and uses them personally. 1|tv'hieh two duties should have been separated to prevent tltis prohlem‘? g3 Custody ot'the asset and authorization of the transaction . Custody of'the asset and recording of the transaction L'. Authorization of the transaction and recording ofthe transaction l). Authorization of the transaction and approval ofthc transaction F2. There are no duties listed that it" separated could have prevented the problem. 7'. In our comprehensive problem. Bryan purchased two vans to he used on client visits. Assume tlte final negotiated price was $50,000 (Le. 525.000 each} and that he made a 20% cash down—pavltient and financed the balance. 1|.‘l’hich of the following entries would be made at the time that title of the vans was transferred in to the company's nanie'.’ 0- Debit Credit Note Payahle 40.000 Cash l0.000 Vehicles 50.000 Q3) Debit Cnedit ‘v'ehicles 50.000 Notc Payable 40.000 Cash 10.000 C'- Debit Credit 1|v’ehicles 40.000 Cash 10.000 Note Payable 50.000 [1 Debit Credit ‘v‘ehicles 50.000 Note Pavahle 50.000 5 hit Credit Vehicles 50.000 Note Payable 10.000 ICash 40.000 lit. How will the vehicles described in the above problem he classified on the financial statements? A. Current Asset. Income Statement E. Non—current Asset. Income Statement ' Current Asset. Balance Shcct Non-currcrlt r‘tsscl. Balance Shcct __ Home of the above 9. Assume that on October fiflth Bryan and Abigail paid the local radio station Slflt'lfl representing payment in full for three months of advertising spots starting on November lst. Assume tltat they prepare proper accrual basis financial statements on a tttontltly basis as such any necessary adjusting entries have been made. The entry on October 39th would inclttde: .t‘t.._ a debit to adyertising expense for $3,Ufltl g) a debit to pre-paitl advertising expense for Hildflfl . a credit to Fire-paid ads-'ertisir'tg expense for snooo D. a credit to accounts payable for some E. None of the above would be included as part of the entry. 10. 1tl'r'liicli of the following is an example of an enterprise risk'.’ r‘t. Llnespeeted competition from another indttstry B. An industry-wide eost inerease @a fire at a manufacturing location that that stops production for a month. . A far reaching flu epidemic E. A, B 3; C‘ are all examples 1 |. On Jttly 31’1 I-Iawthonte Manufacturing lCompany [the "seller"} ships $Itl.tlt]tl of mercltattdise to a custotner {i.e. the "buyer"] FOB shipping point. Hawtholne pays $5M} of shipping related to this sale. fits part of the sales terms Hawthorne offers the customers a 1% cash diseottnt if the sales price is paid within 10 days. Ifit is paid after the lit day window Hawthorne expects that customers will pay the balance in full within 3t] days. The merchandise is delivered to the customer on August 5th and payment is remitted by the customer on August 12th. | low would this purchase discount be displayed on the doctttttentation suppolting the sale“.J fit. Iflf I, tl-"3U' B. Hill nfEU‘ lilt'l. nflfl' C . CE) I.-"1u. nrso E. None of the above 12. Continue using the Hawthorne Manufacturing Company facts previously provided. [in what date would the purchased inventory be recorded by the buyer.J gs) so I st . tit'fith C. 3:" l t'lth D. 3:" 1 1th E. None of the above 13. Continue using the Hawthorne Manufacturing Company faets previously provided. At the time of payment, how mtteh cash will the buyer be eapeeted to remit in order to settle the aeeouut in full'? A. 39.9% I3. Slflfitlfl C. 310.395 310.501] E. it I [insult] 14. For a business. a supplier A. tnakes loans to the company to ltelp finance its activities. B. is a company or individual to whom the business sells goods or services. if." is a company or individual that owns sltares ot'the bttsine ss. @ provides goods and services used by the business. |:. None oi" the above is correct. [5. Tire atrtount of insurance expense reported on the income statement is A the amottnt oi'caslt paid for ittsura nce in the cttrrent period. @ the amottnt of insurance used up tincttiTedi in the current period to help generate revenue. . the amottnt of cash paid for insurance in the current period less any unpaid insurance at the end of the period. D. an increase in net income. |:'. None oi" the above to. A few years ago, Baker Corporation introduced a new product carrying a two—year warrattty against defects. The total future warranty cost are estimated to be S‘Irii of sales. Based on past history and industry averages, filed claims are expected to be twice as common in the last twelve tttonths oi' the contract than in the first twelve months. At the beginning oi‘199] Baker had a Slitltlt} balance in its warranty obligation account representing the estimated cost ol" un filed warranty claims t‘rorn sales made in I939 3t lass. Sales for the year ended December 3|, [991 were fill-[11ml] and during 199] the company incurred Silit'ttltl of cost servicing actual claims filed during l9'3l'l. What amount should be reported as warranty expense for the year ended I233 Iditl’.J a. saunas f a. ssaaa a: C. 325.0% o. Slitltit} ’5 10 ® saunas JD 17". .ludy has hired a cleaning service. The owner at" the cleaning service requires that employees clean in pairs {i.c. team cleaning]. Which of the following risks associated with owning a cleaning service will the team cleaning approach NOT ltelp to control? A. The risk that cleaning supplies will be stolen or misttsed. te risk oi‘collttsion . The risk that employees will conduct personal business on company time I). The risk that the quality or work will be below company standards E. Team cleaning will help to mitigate all of the above risks. [8. When a product or service is delivered for which a customer advance has been previously received. the appropriate journal entry includes: r‘t. ft debit to an asset and a credit to a revenue account. ft debit to a liability and a credit to a revenue account. .. a debit to a revenue and a credit to a liability account. D. A debit to a revenue and a credit to an asset account. E. None of the above 1‘}. Jake Wildemess owns a Canadian based hunting lodge that runs guided hunting trips. His wife Carol. runs the hospitality side of the hunting business and a separate catering business. lake and Carol personally borrowed sleeper} to use for a home remodeling project. The fact that this liability was ttot recorded on either the hunting lodge or the catering books is consistent with which principley assttmption or constraint included in your conceptual framework readings? A. The realization principle @‘I'he economic entity assumption .. The historical cost principle D. Materiality constraint E. None of the above support the treatment ofthe liability 2U. 1Il'tihich of the following statements about a contingent liability are true? A. All liabilities recorded on the financial statements are considered contingent. Ft. When evaluating a contingent liability. only information that is available as ofthc balanee sheet date may be taken in to consideration [i_e_ because we are taking a snapshot at this exact "point-in-tirnc"). C. The rttles sttrrounding the recognition of contingent liabilities although inconsistent witlt matching and conservatism do enhance the relevance ofthe financial statements. D. The act of teen gnizing a contingent liability on the financial statements would be considered an accrual type adjusting entry. E. H and L} are both true 2 I. Which of the following statements are false? A. Despite the fact that top management have little day-to-day interactions with the majority of employees top manageme nt's attitudes and actions can still enhance or detract from the control environment of the enterprise. B. l[Liompanics with a strong internal control environment should design a control system that focuses on mitigating risks identified as having M a high likelihood ofoceurrence and a high impact. (9 Jan Company has a longstanding relationship with a particular vendor and has a strong system ofinternal 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. Jan's receiving department should be able to prevent this fraud simply by performing blind counts on all incoming orders. D. B slit C are both false E. s'tll ofthe above are false 22. Explain how the following general journal entry ultimately affects the accounting equation tie. after all closingr entries). lCash $1 s.ooo Accounts Receivable $| SJJEID a. Assets increase and equity decreases. B. Assets increase and the income summary clearing account decreases. C'. Both assets and equity increase. Assets decrease. E. here is no change in the accounting equation 23. Carolina Mills purchamfi all ul‘its. supplies Tram Da Vinci mqmratit‘rn and all purchaacs ttl‘fiupplics an: made on acantnt. Carmina Mills repnrtcd the following activity fur the year ended DIME-[1:11 Accuu nts Payable D3. ‘v’ittu't Su . lict-i Cu umtifln Sflflflfl SE'lfifl-fl 3“ 3“ 22 Sflflfl 1541(1le 1 flfllfiflfl Tfififl'fl Given 1111.: ubuvt: flCL' uunl activity. what was tht: EilTIUlJI'll ur supplius uxpL'ns-t: rcpurtutl Fur lht: yuar IJIIIJULI 11!] I Him 7'”? A. 3251001] I3. 501001] " lflflflflfl D. Siliflflu |:'. ELESUflflfl 24. The employees oFNeat Clothes work Monday through Friday. Every other Friday the company issues payroll eheolts totaling $3flfiflfl. The current pay period ends on Friday. July 9th. Neat Clothes is now preparing quarterly financial statements for the tltree tnonths ended June 30. 1tlt'l'tat is the adjusting entry to record seemed salaries at the end of I one? r‘t. DEBIT CREDI'I' Salary on: pause soaoa C ash 3 otooo B. DE BIT CREDIT Salary expense 'MI'UU Cash QIJ-(ltil C. DE BIT lCREDIT Salary expense 9,0{IU Salaries Payable Elli-[It] D. DE BIT lCREDIT Salary Expense 2 Ltllflfl Salaries Payable 2 lfiflflfl E. DEBIT CREDIT Salaries Payable aooo Salary Expert se 'tlfititflll 25. Please elteek your seantrott {i.e. bubble sheet] and make sure that your test form is petieiled in as "B". Ifit is I‘IUL please eorreet it. IIll't'tee you have done this. bubble in "B" to answer this question. ...
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