Suffolk County Community College

AC11 – Prof. R. Rovegno Quiz #4 F’06

1. Internal controls are concerned with 8. Physical controls to safeguard assets do not include

a. only manual systems of accounting. a. cashier department supervisors.

b. the extent of government regulations. b. vaults.
c. safeguarding assets. c. employee identification badges.
d. preparing income tax returns. d. security guards.

2. Having one person post entries to accounts receivable 9. The counting of cash register receipts made by
subsidiary ledger and a different person post to the department supervisors is an example of
Accounts Receivable Control account in the general
ledger is an example of a. other controls.
b. independent internal verification.
a. inadequate internal control. c. establishment of responsibility.
b. duplication of effort. d. segregation of duties.
c. external verification.
d. segregation of duties. 10. A voucher system is a series of prescribed control
procedures
3. From an internal control standpoint, the asset most
susceptible to improper diversion and use is a. to check the credit worthiness of customers.
b. designed to assure that disbursements by
a. prepaid insurance. check are proper.
b. cash. c. which eliminates the need for a journal.
c. buildings. d. specifically designed for small firms who
d. land. may not have checking accounts.

4. Internal auditors 11. A petty cash fund is generally established in order to

a. are hired by CPA firms to audit businesses.
b. are employees of the IRS
c. evaluate the system of internal controls for
the companies that employ them.
d. cannot evaluate the system of internal
controls of the company that employs them
because they are not independent.
a. pay for all merchandise purchased on
account.
b. pay employees’ wages.
c. make loans internally to employees.
d. pay relatively small expenditures.
12. A check returned by the bank marked "NSF" means

5. Two individuals at a retail store work the same cash a. no service fee.
register. You evaluate this situation as b. no signature found.
c. not satisfactorily filled-out.
a. a violation of establishment of responsibility. d. not sufficient funds.
b. a violation of separation of duties.
c. supporting establishment of responsibility. 13. A bank reconciliation should be prepared
d. supporting internal independent verification.
a. whenever the bank refuses to lend the company
6. Related selling activities do not include money.
b. when an employee is suspected of fraud.
a. ordering the merchandise. c. to explain any difference between the depositor's
b. making a sale. balance per books with the balance per bank.
c. shipping the goods. d. by the person who is authorized to sign checks.
d. billing the customer.

7. Related buying activities include

a. ordering, receiving, paying.

b. ordering, selling, paying.
c. ordering, shipping, billing.
d. selling, shipping, paying. 14. A bank statement
 a. lets a depositor know the financial position
of the bank as of a certain date. 20. If Allow. for D/A. has a credit balance of $1,100 at
b. is a credit reference letter written by the the end of the year (before adjustment), and an
depositor's bank. Aging of A/R shows doubtful accounts of $12,900,
c. is a bill from the bank for services rendered. which of the following adjustments is correct?
d. shows the activity which increased or
decreased the depositor's account balance. a. Bad Debts Expense 1,100
Allow. for Doubtful Accts. 1,100
15. Deposits in transit
b. Bad Debts Expense 12,900
a. have been recorded on the company's Allow. for Doubtful Accts. 12,900
books but not yet by the bank.
b. have been recorded by the bank but not yet c. Bad Debts Expense 11,800
by the company. Allow. for Doubtful Accts. 11,800
c. have not been recorded by the bank or the
company. d. Allow. for Doubtful Accts. 11,800
d. are checks from customers which have not Bad Debts Expense 11,800
yet been received by the company.
21. If Allow. for D/A has a debit balance of
16. In preparing a bank reconciliation, outstanding $400 at the end of the year (before adjustment),
checks are and the estimated doubtful accounts is 1% of
credit sales of $200,000, then the amount of the
a. added to the balance per bank. adjusting entry would be
b. deducted from the balance per books.
c. added to the balance per books. a. $400
d. deducted from the balance per bank. b. $1,600
c. $2,400
17. If a check correctly written and paid by the bank d. $2,000
for $448 is incorrectly recorded on the company's
books for $484, the appropriate treatment on the 22. After adjusting & closing entries have been posted,
bank reconciliation would be to the A/R account has a balance of $575,000 & the
Allowance account has a balance of $25,000. What
a. add $36 to the bank's balance. is the Net A/R?
b. add $36 to the book's balance.
c. deduct $36 from the bank's balance. a. $550,000
d. deduct $448 from the book's balance. b. $25,000
c. $600,000
18. An adjusting entry is not required for d. $575,000

a. outstanding checks. 23. The Allowance Method attempts to satisfy which of

b. collection of a note by the bank. the following accounting principles
c. NSF checks.
d. bank service charges. a. Matching
b. Consistency
19. Two methods of estimating uncollectible A/R are c. Conservatism
the "Analysis (Aging) of A/R Method" and the d. All of the above

a. Direct Write-Off 24. If a company fails to record estimated bad debts

b. % of Sales Method expense,
c. % of Completion
d. Installment Method a. cash realizable value is understated.
b. expenses are understated.
c. revenues are understated.
d. receivables are understated.
25. When the allowance method is used to account for
uncollectible accounts, Bad Debts Expense is
debited when 31. When the allowance method of accounting for
uncollectible A/R is used, Bad Debt Exp. is recorded
a. a sale is made.
b. an account becomes bad and is written off. a. in the year after the credit sale is made.
c. management estimates the amount of b. in the same year as the credit sale.
uncollectibles. c. as each credit sale is made.
d. a customer's account becomes past-due. d. when an account is written off as
uncollectible.
26. When an account becomes uncollectible and
must be written off, 32. To record estimated bad debts expense using the
allowance method, the adjusting entry would be a
a. Allowance for Doubtful Accounts should be
credited. a. debit to Accounts Receivable and a credit to
b. Accounts Receivable should be credited. Allowance for Doubtful Accounts.
c. Bad Debts Expense should be credited. b. debit to Bad Debts Expense and a credit to
d. Sales should be debited. Allowance for Doubtful Accounts.
c. debit to Allowance for Doubtful Accounts and
27. Bad Debts Expense is considered a credit to Accounts Receivable.
a. an avoidable cost in doing business on a d. debit to Loss on Credit Sales and a credit to
credit basis. Accounts Receivable.
b. an internal control weakness.
c. a necessary risk of doing business on a 33. Allowance for Doubtful Accounts on the balance
credit basis. sheet
d. avoidable unless there is a recession.
a. is offset against total current assets.
b. increases the cash realizable value of
28. The best managed companies will have accounts receivable.
c. appears under the heading "Other Assets."
a. no uncollectible accounts. d. is offset against accounts receivable.
b. a very strict credit policy.
c. a very lenient credit policy. 34. If an account is collected after having been
d. some accounts that will prove to be previously written off,
uncollectible.
a. the allowance account should be debited.
29. Two methods of accounting for uncollectible b. only the control account needs to be
accounts are the credited.
c. both income statement and balance sheet
a. allowance method and the accrual method. accounts will be affected.
b. allowance method and the net realizable d. the A/R must be reinstated & then shown as
method. collected.
c. direct write-off method and the accrual
method. 35. Lane Company uses the percentage of sales
d. direct write-off method and the allowance method for recording bad debts expense. For
method. the year, cash sales are $500,000 and credit
sales are $2,000,000. Management estimates
30. Bad Debts Expense is reported on the income that 1% is the sales percentage to use. What
statement as adjusting entry will Lane Company make to
record the bad debts expense?
a. part of cost of goods sold.
b. reducing gross profit. a. Bad Debts Expense 25,000
c. an operating expense. Allowance for D/A 25,000
d. a contra-revenue account. b. Bad Debts Expense 20,000
Allowance for D/A 20,000
c. Bad Debts Expense 20,000
 Accounts Receivable 20,000 b. August 9.
d. Bad Debts Expense 25,000 c. August 10.
Accounts Receivable 25,000 d. August 12.

36. What is the due date & maturity value of a 90-day,

9% note for $10,000 dated August 3?

a. Oct. 31; $10,225 43. A promissory note

b. Nov. 1; $10,225
c. Oct. 31; $10,900 a. is not a formal credit instrument.
d. Nov. 1; $10,900 b. may be used to settle an accounts
receivable.
c. has the party to whom the money is due as
37. A promissory note that is not paid off on the due date the maker.
is said to be d. cannot be factored to another party.

a. Uncollectible 44. The two key parties to a promissory note are the
b. Dishonored
c. Honored a. maker and a bank.
d. Written off b. debtor and the payee.
c. maker and the payee.
38. The party that has a note receivable is referred to as d. sender and the receiver.
all of the following except
45. The interest on a $4,000, 10%, 1-year note
a. Maker receivable is
b. Holder
c. Payee a. $4,000.
d. Endorser b. $400.
c. $4,040.
39. If a note receivable is not collected on the due date it d. $4,400.
reverts back to being a
46. The face value of a note refers to the amount
a. Debt
b. Long term note a. that can be received if sold to a factor.
c. Check b. borrowed plus interest received at maturity
d. Account Receivable from the maker.
c. that is identified as the principal amount
40. A 60-day note receivable dated April 13 has a d. remaining after a service charge has been
maturity date of deducted.

a. June 13. 47. Tresh Company receives a $6,000, 3-month, 12%

b. June 12. promissory note from Carr Company in settlement of
c. June 11. an open accounts receivable. What entry will Tresh
d. June 10. Company make upon receiving the note?

41. The maturity value of a $30,000, 10%, 60-day note a. N/R-Carr 6,180
receivable dated July 3 is A/R—Carr 6,180

a. $30,000. b. N/R-Carr 6,000

b. $33,000. A/R—Carr 6,000
c. $35,000.
d. $30,500. c. N/R-Carr 6,000
Interest Receivable 180
42. A 90-day note dated May 11 has a maturity date A/R—Carr 6,180
of
d. Cash 6,180
a. August 11. N/R—Carr 6,000
 Interest Revenue 180

48. Tresh Company receives a $6,000, 3-month, 12%

promissory note from Carr Company in settlement of
an open accounts receivable. What entry will Tresh
Company make upon the collection of the note on
the due date?

a. N/R-Carr 6,180
A/R—Carr 6,180

b. N/R-Carr 6,000
A/R—Carr 6,000

c. N/R-Carr 6,000
Interest Receivable 180
A/R—Carr 6,180

d. Cash 6,180
N/R—Carr 6,000
Interest Revenue 180

49. Tresh Company receives a $6,000, 3-month, 12%

promissory note from Carr Company in settlement of
an open accounts receivable. What entry will Tresh
Company make on the due date if the note is
dishonored?

a. N/R-Carr 6,180
A/R—Carr 6,180

b. N/R-Carr 6,000
A/R—Carr 6,000

c. N/R-Carr 6,000
Interest Receivable 180
A/R—Carr 6,180

d. A/R-Carr 6,180
N/R—Carr 6,000
Interest Revenue 180

50. A promissory note that is paid off on the due date is

said to be

a. Uncollectible
b. Dishonored
c. Honored
d. Written off