Question: Which of the following is not an element of internal control?
Answer Options:
a. cost-benefit considerations b. monitoring c. information and communication d. risk assessment
Answer: a. cost-benefit considerations
Question: An element of internal control is
Answer Options:
a. risk assessment b. subsidiary ledgers c. controlling accounts d. journals
Answer: a. risk assessment
Question: Under the specific identification method, gross profit is determined by
Answer Options:
a. identifying the unit sold with the specific cost when it was purchased. b. identifying specific units for cost of merchandise sold but not for sales. c. using specific units for sales and LIFO for cost of merchandise sold. d. identifying specific units for sales but not for cost of merchandise sold.
Answer: a. identifying the unit sold with the specific cost when it was purchased.
Question: Regarding consigned inventory,
Answer Options:
a. the consignee retains the title to the inventory. b. the retailer is the consignor. c. the unsold merchandise is part of the consignee’s records at year-end. d. the manufacturer is the consignor.
Answer: d. the manufacturer is the consignor.
Question: A bank reconciliation should be prepared periodically because
Answer Options:
a. the bank must make sure that its records are correct b. any differences between the company’s records and the bank’s records should be determined, and any errors made by either party should be discovered and corrected c. the company’s records and the bank’s records are in agreement d. the bank has not recorded all of its transactions
Answer: b. any differences between the company’s records and the bank’s records should be determined, and any errors made by either party should be discovered and corrected
Question: The objectives of internal control are to
Answer Options:
a. provide control over “internal-use only” reports and employee internal conduct b. prevent fraud and promote the social interest of the company c. control the internal organization of the Accounting Department personnel and equipment d. provide reasonable assurance that assets are safeguarded and used for business purposes, financial reports are accurate, and laws and regulations are complied with
Answer: d. provide reasonable assurance that assets are safeguarded and used for business purposes, financial reports are accurate, and laws and regulations are complied with
Question: An advantage of using the retail method of inventory costing is
Answer Options:
a. that it provides inventory figures for preparing monthly and quarterly financial statements when the periodic system is used. b. that it allows management to monitor operations more closely when the number of physical inventories is reduced. c. that it may be used as an aid in taking a physical inventory. d. All of these choices are correct.
Answer: d. All of these choices are correct.
Question: Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the company’s accounts?
Answer Options:
a. debit Accounts Payable; credit Cash b. debit Cash; credit Accounts Payable c. debit Cash; credit Other Income d. debit Miscellaneous Expense; credit Cash
Answer: d. debit Miscellaneous Expense; credit Cash
Question: During the taking of its physical inventory, a company inadvertently counted its inventory as $89,800 instead of the correct amount of $86,700. Indicate the effect of the misstatement on the balance sheet of the current year.
Answer Options:
a. Liabilities are overstated by $3,100. b. Owner’s equity is overstated by $3,100. c. Assets are understated by $3,100. d. Owner’s equity is understated by $3,100.
Answer: b. Owner’s equity is overstated by $3,100.
Question: Several controls are used to safeguard inventory, and one of those is to
Answer Options:
a. hire security guards. b. keep low-priced inventory behind lock and key. c. allow one employee to order inventory, check in shipments, and stock shelves with inventory to prevent errors. d. allow all employees access to the materials warehouse.
Answer: a. hire security guards.
Question: Estimating inventory may be needed for all of the following reasons EXCEPT
Answer Options:
a. when the inventory cost is based on a predetermined relationship. b. when a fire has destroyed the inventory and inventory records. c. when the periodic method is used instead of taking a physical inventory. d. when it is impractical to take a physical inventory.
Answer: c. when the periodic method is used instead of taking a physical inventory.
Question: Determining gross profit using the weighted average cost flow method assumes that the cost of the units sold
Answer Options:
a. is a weighted average of the purchase cost of all units. b. is costed the same as the ending inventory, that is, using a weighted average of the purchase cost of all units. c. Neither of these choices are correct. d. Both of these choices are correct.
Answer: d. Both of these choices are correct.
Question: The debit balance in Cash Short and Over at the end of an accounting period is reported as
Answer Options:
a. an expense on the income statement b. a liability on the balance sheet c. income on the income statement d. an asset on the balance sheet
Answer: a. an expense on the income statement
Question: Which of the following is a benefit of using a computerized perpetual inventory system?
Answer Options:
a. Computerized perpetual inventory systems are helpful when recording many inventory transactions. b. Sales patterns can be analyzed easily when using computerized perpetual inventory systems. c. Computerized perpetual inventory systems help managers track inventory. d. All of these choices are correct.
Answer: d. All of these choices are correct.
Question: A voucher is usually supported by
Answer Options:
a. a supplier’s invoice b. a receiving report c. a purchase order d. All of these choices
Answer: d. All of these choices
Question: When a periodic inventory system is used,
Answer Options:
a. only revenue is recorded each time a sale is made. b. only the reduction of inventory is recorded each time a sale is made. c. only the cost of merchandise sold is recorded each time a sale is made. d. None of these choices are correct.
Answer: a. only revenue is recorded each time a sale is made.
Question: Several controls are used to safeguard inventory EXCEPT
Answer Options:
a. hiring security guards. b. keeping high-priced inventory behind lock and key. c. installing two-way mirrors and cameras. d. allowing all employees access to the materials warehouse.
Answer: d. allowing all employees access to the materials warehouse.
Question: Which inventory costing method offers income tax savings during periods of rising prices?
Answer Options:
a. Weighted average inventory cost method b. LIFO inventory cost method c. Specific identification inventory cost method d. FIFO inventory cost method
Answer: b. LIFO inventory cost method
Question: Inventory turnover measures
Answer Options:
a. the efficiency and effectiveness of inventory management. b. the relationship between cost of merchandise sold and the amount of inventory carried during the period. c. both the efficiency and effectiveness of inventory management and the relationship between cost of merchandise sold and the amount of inventory carried during the period. d. neither the efficiency and effectiveness of inventory management nor the relationship between cost of merchandise sold and the amount of inventory carried during the period.
Answer: c. both the efficiency and effectiveness of inventory management and the relationship between cost of merchandise sold and the amount of inventory carried during the period.
Question: Which of the following inventory costing methods under a perpetual inventory system is widely used for tax purposes?
Answer Options:
a. Weight average b. LIFO c. Physical count d. FIFO
Answer: b. LIFO
Question: Merchandise inventory is found on the balance sheet as a
Answer Options:
a. long-term asset. b. current liability. c. current asset. d. long-term liability.
Answer: c. current asset.
Question: When using the periodic FIFO inventory cost method, which of the following statements is correct?
Answer Options:
a. The cost of merchandise sold is made up of the earliest purchases. b. The physical count determines the inventory on hand. c. The cost of merchandise on hand is made up of the most recent costs. d. All of these choices are correct.
Answer: d. All of these choices are correct.
Question: The inventory costing method that will yield a higher ending inventory during times of inflation will be the
Answer Options:
a. specific identification inventory cost method. b. weighted average inventory cost method. c. LIFO inventory cost method. d. FIFO inventory cost method.
Answer: d. FIFO inventory cost method.