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The use of internal controls guarantees protection against losses due to fraud,errors,and inefficiencies.

A) True
B) False

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BetterBuy sells a computer from inventory for $599 on credit.BetterBuy originally bought the computer from IBM for $395 and uses the perpetual inventory system.How is the sale recorded in BetterBuy's journal entries?


A) Debit Cash for $599,credit Sales for $599;debit Cost of goods sold for $395 and credit Inventory for $395.
B) Debit Accounts Receivable for $599,credit Inventory for $395,and credit gross profit for $204.
C) Debit Accounts Receivable for $599,credit Sales for $599;debit Cost of Goods Sold for $395 and credit Inventory for $395.
D) Debit Inventory for $395,debit Cost of Goods Sold for $204,and credit Accounts Receivable for $599.

E) A) and B)
F) A) and C)

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What is the amount of gross profit?


A) $94,200
B) $98,700
C) $105,000
D) $32,700

E) A) and C)
F) None of the above

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Which of the following bank reconciliation items would not result in an adjusting journal entry in the company's books?


A) Service charge.
B) Outstanding checks.
C) A customer's check returned NSF.
D) Interest earned on deposits.

E) A) and D)
F) C) and D)

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On June 15,Oakley Inc.sells merchandise on account to Sunglass Hut (SH) for $1,000,terms 2/10,n/30.On June 20,SH returns to Oakley merchandise that SH had purchased for $300.On June 24,SH completely fulfills its obligation to Oakley by making a cash payment.What is the amount of cash paid by SH to Oakley?


A) $680.
B) $686.
C) $700.
D) $1,000.

E) B) and C)
F) All of the above

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When preparing this month's bank reconciliation,you find that you failed to record a $95 deposit for a payment you received from a customer.You immediately prepare a journal entry to record the deposit.Which of the following describes the actions to be taken when preparing next month's bank reconciliation?


A) You must decrease the balance per bank by $95.
B) You must increase the balance per bank by $95.
C) You must increase the balance per books by $95.
D) No further action is necessary.

E) B) and C)
F) A) and D)

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Which of the following items on a bank reconciliation would require an adjusting journal entry on the company's books?


A) An error by the bank.
B) Outstanding checks.
C) A bank service charge.
D) A deposit in transit.

E) A) and D)
F) All of the above

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If a company's ending inventory count was $50,000,cost of goods sold was $27,000,and purchases were $56,000,its beginning inventory must have been


A) $33,000.
B) $133,000.
C) $79,000.
D) $21,000.

E) None of the above
F) B) and C)

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Which of the following statements is not true about sales returns & allowances?


A) Sales returns and allowances can provide useful information about the quality of merchandise and the possibility of unsatisfied customers.
B) Sales returns and allowances are recorded in a separate contra-revenue account.
C) Sales returns and allowances are always disclosed in external financial statements.
D) Sales returns and allowance are closed to retained earnings at the end of the year.

E) A) and D)
F) A) and C)

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E.Flynn Company uses a perpetual inventory system and reported $500,000 of inventory at the beginning of the month based on a physical count of inventory.During the month,the company bought $45,000 of inventory and sold inventory that had cost $30,000.At the end of the month,the physical count of inventory shows $510,000 on hand.How much shrinkage occurred during the month?


A) $35,000
B) $25,000
C) $5,000
D) $10,000

E) B) and C)
F) A) and D)

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Deposits in transit:


A) have been recorded by the company but not yet by the bank.
B) have been recorded by the bank but not yet by the company.
C) have not been recorded by the bank or the company.
D) have been recorded by both the bank and the company.

E) A) and B)
F) A) and C)

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When goods are sold to a customer with credit terms of 2/15,n/30,the customer will:


A) receive a 15% discount if they pay within 2 days.
B) receive a 2% discount if they pay 15% of the amount due within 30 days.
C) receive a 15% discount if they pay within 30 days.
D) receive a 2% discount if they pay within 15 days.

E) All of the above
F) A) and C)

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Merchandise shipped FOB shipping point on the last day of the year should be included in:


A) the inventory balance of the seller.
B) the inventory balance of the buyer.
C) neither the inventory balance of the buyer or the seller.
D) both the inventory balance of the buyer and the seller.

E) All of the above
F) B) and C)

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Which of the following statements is true?


A) Because gross profit percentages are so consistent from period to period,they are not very useful for analyzing one company over time.
B) Because gross profit percentages are so variable across industries,they are most useful in comparing companies from different industries.
C) Because gross profit percentages are so variable across industries,they are more useful in analyzing one company over time.
D) Because gross profit percentages are so consistent across industries,they are most useful in comparing companies from different industries.

E) B) and C)
F) A) and D)

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Which of the following is not a commonly used internal control?


A) Mandatory vacations.
B) Anonymous hotlines.
C) Bonding of employees.
D) Consolidating duties.

E) None of the above
F) A) and D)

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Companies using a perpetual inventory system:


A) never physically count their inventory.
B) must count their inventory at least once a week.
C) still need to count the inventory at the end of the period.
D) always know the actual amount in inventory from their accounting records.

E) B) and D)
F) B) and C)

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The gross profit percentage is computed by dividing operating income by net sales.

A) True
B) False

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Use the information above to answer the following question.Gross profit for 2014 would be


A) $35,000.
B) $37,000.
C) $41,000.
D) $71,000.

E) All of the above
F) B) and D)

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Cash sales rung up by cashiers totaled $117,000.Cash in the drawer was counted and found to be $119,000.The journal entry to record the day's sales would include


A) a debit to cash for $117,000.
B) a credit to cash overage for $2,000.
C) a credit to sales for $119,000.
D) a debit to sales for $117,000.

E) All of the above
F) B) and D)

Correct Answer

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Which of the following is an activity in the operations of a manufacturer,but not in the operations of a merchandising or service company?


A) Selling the good to consumers.
B) Receiving cash.
C) Selling the good to other firms.
D) Buying raw materials.

E) A) and B)
F) B) and D)

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