ACT 2200 Lecture Notes - Lecture 4: Financial Statement, List Of The Shield Episodes, Public Company Accounting Oversight Board

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29 May 2017

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Currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), and cash equivalents. Short-term investments that have a maturity date no longer than 3 months from the date of purchase. Common examples of such investments are money market funds, treasury bills, and certificates of deposit. The ability of net income to help predict future performance of the company. Operating cash flows plus investing cash flows during the period. The use of one"s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization"s resources. In response to the corporate accounting scandals and to public outrage over seemingly widespread unethical behavior of top executives such as enron and worldcom, congress passed the Sarbanes-oxley act, also known as the public company accounting reform and investor. Protection act of 2002 and commonly referred to as sox.

Related Questions

Periodic inventory system. Each of the following four horizontal lines represents data taken from a separate multiple-step income statement. Insert the missing amounts in the space (empty box) provided. Indicate any net loss by placing brackets around the amount.

Hint: Not all parts of the income statement are shown, so be careful with your arithmetic.

	Beginning Inventory	Purchases	Cost of Goods Available for Sale	Ending Inventory	Cost of Goods Sold
a.	$180,000		$325,000	$80,000

	Sales (Revenue)	Cost of Goods Sold	Gross Profit	Operating Expenses	Net Income
b.	$240,000	$145,000			$32,000

	Revenue (Sales)	Cost of Goods Available for Sale	Ending Inventory	Cost of Goods Sold	Gross Profit	Operating Expenses	Net Income
c.	$515,000	$240,000		$145,000		$225,000	$145,000

. For each question below, circle the best answer from the choices given. (

1 : Under the periodic inventory system the purchases of merchandise are recorded at their selling prices.
a. True b. False

2 : Inventory shrinkage does not include the loss of merchandise through shoplifting.
a. True b. False

3 : Only under the periodic inventory system is a physical count of the inventory necessary.
a. True b. False

4 : It is not possible to have more inventory at the end of a period then at the beginning of a period.
a. True b. False

5) True and false. Indicate whether each of the following is True (T) or False (F). (5 POINTS)

T F 1. US Treasury bills that mature within 120 days are cash equivalents.

T F 2. Financial assets describe not just cash, but all assets that are easily and directly convertible into known amounts of cash.

T F 3. Good cash mgmt. dictates that any cash and checks received each day should be deposited the same day.

T F 4. The income statement approach to estimating Bad debts Expense emphasizes the aging of accounts receivable and the adjustment of the Allowance for Doubtful Accounts account to the level of the estimated uncollectible amount.

T F 5. When I use the allowance method for accounts receivable, I will recognize a Bad Debt Expense at the same time the account is taken off the Accounts Receivable Subsidiary Ledger.

. For each question below, circle the best answer from the choices given.

1. Which of the following items would cause the ending balance on the bank statement to be larger than the ending balance of cash shown in the accounting records (checkbook)?

A) Bank service charges.

B) Deposits in transit.

C) Outstanding checks.

D) NSF check from one of the depositor's customers.

2. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the companyâs records are:

A) To correct errors made by the bank in recording the dollar amounts of cash transactions during the period.

B) To reconcile items explaining the difference between the balance per books and the balance per bank stmt.

C) To record outstanding checks and bank service charges.

D) To record items explaining the difference between the balance per accounting records and the adj. cash bal.

3. The Allowance for Doubtful Accounts represents:

A) Cash set aside to make up for bad debt losses.

B) The amount of uncollectible accounts written off to date.

C) The difference between total credit sales and collections on credit sales.

D) The difference between the face value of A/R and the net realizable value of A/R.

4. In preparing a bank reconciliation, a service charge shown on the bank statement should be:

A) Added to the balance per the bank statement.

B) Deducted from the balance per the bank statement.

C) Added to the balance per the depositor's records.

D) Deducted from the balance per the depositor's records.

5. During preparation of a bank reconciliation, outstanding checks should be:

A) Added to the balance per the bank statement.

B) Deducted from the balance per the bank statement.

C) Added to the balance per the depositor's records.

D) Deducted from the balance per the depositor's records.

Bank reconciliation. Indicate what effect each situation will have on the bank reconciliation process (Match the situation with the bank reconciliation process below by placing the number of the process next to the situation). Note that there are more situations than processes, so some processes may be used more than once, but not all processes have to be used. Only one process is required for each situation. Hint: Determine if Cash is increasing or decreasing

Process

Deduct from bank balance 2. Add to bank balance

3. Deduct from checkbook balance 4. Add to checkbook balance

Situation

_______ Bank received $2,750 from one of your customers (Terms: Cash in advance)

_______ Bank collection (wire) fee was $15

_______ Check number 111 was outstanding for $55

_______ A $400 check was written, but recorded on the books as $40

_______ Interest received from your bank for the month was $16.55

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1. As of December 31, 2000, DaltonCompany has $7,240 cash in its checking account, as well as severalother items listed below:

Bank credit card slips signed by customers $ 900

Money market fund balance 4,000

Investment in US Treasury bills 10,000

Checks received from customers, but not

yet deposited in the bank 700

Investment in ATT 10% bonds, maturing June2001 15,000

What amount should be shown in Dalton's December 31,2000, balance sheet as "Cash and cash equivalents"?

A) $15,600.

B) $22,840

C) $37,840

D) $30,600

The Cash account in the ledger of Townhouse Co. shows a balanceof $16,526 at September 30. The bank statement, however, shows abalance of $20,900 at the same date. The only reconciling itemsconsist of a bank service charge of $6, a large number ofoutstanding checks totaling $5,930, and a deposit in transit.

2. Refer to the abovedata. What is the adjusted cash balance in the September30 bank reconciliation?

Answer A) $10,590.

B) $16,520.

C) $14,970

D) $14,964

3. Silbey Inc. had accounts receivable of$200,000 and an allowance for doubtful accounts of $8,700 justbefore writing off as worthless an account receivable from WalleyCompany of $1,200. After writing off this receivable what would bethe balance in Silbey's Allowance for Doubtful Accounts?

Answer A) $8,700 creditbalance.

B) $9,900 credit balance.

C) $7,500 credit balance.

D) $7,500 debit balance.

4. At the start of the current year, AcquaCorporation had a credit balance in the Allowance for DoubtfulAccounts of $1,200. During the year a monthly provision of 2% ofsales was made for uncollectible accounts. Sales for the year were$400,000, and $7,400 of accounts receivable were written off asworthless. No recoveries of accounts previously written off weremade during the year. The year-end financial statements shouldshow:

A) Uncollectible accountsexpense of $15,400.

B) Allowance forDoubtful Accounts with a credit balance of $1,800.

C) Allowance forDoubtful Accounts with a credit balance of $8,600.

D) Uncollectibleaccounts expense of $7,400.

5. Vector Corporation invested $290,000cash in available-for-sale marketable securities in earlyDecember. On December 31, the quoted market price forthese securities is $307,000. Which of the followingstatements is correct?

Answer A) Vector'sDecember income statement includes a $17,000 gain oninvestments.

B) If Vector sellsthese investments on January 2 for $300,000, it will report a lossof $7,000.

C) Vector's December 31balance sheet reports marketable securities at $290,000 and anUnrealized Holding Gain on investments of $17,000.

D) Vector's December 31balance sheet reports marketable securities at $307,000 and anUnrealized Holding Gain on Investments of $17,000.

6. On June 1, 2001, Swift Company acquired a 10%, ten-month notereceivable from a customer in settlement of an existing accountreceivable of $120,000. Interest and principal are due atmaturity.

8. Refer to the abovedata. The proper adjusting entry at December 31, 2001,with regard to this note receivable includes a:

A) Debit to Cash of $7,000.

B) Debit to NotesReceivable of $12,000.

C) Credit to InterestRevenue of $12,000.

D) Debit to AccruedInterest Receivable of $7,000.

7. In order to achieve internal controlover cash receipts:

A) The employee who handleschecks received in the mail should not prepare the controllisting.

B) The cashier shouldnot deposit cash in the bank.

C) The salesclerkshould not count the cash in the register at the end of theday.

D) The checks receivedin the mail from customers should not be sent to the accountingdepartment to be recorded as cash receipts.

Use the following to answer questions 8 - 9:

On November 1, 2000, Raceway Corporation sold land priced at$700,000 in exchange for a 12%, six-month note receivable.

8 Refer to the above data. Raceway'sbalance sheet at December 31, 2000, includes which of the followingas a result of the sale of land on November 1?

A) Notes Receivable of$700,000 and Interest Receivable of $14,000.

B) Notes Receivable of$742,000 and Interest Receivable of $14,000.

C) Notes Receivable of$700,000 and Interest Receivable of $42,000.

D) Notes Receivable of$700,000 only.

9. Refer to the above data. OnMay 1, 2001 (maturity date), the note is collected in full byRaceway Corporation. Assuming a fiscal year-end of December 31,Raceway recognizes which of the following in its income statementfor 2001 with regard to this note?

A) $742,000 sales revenue

B) $28,000 interest revenue.

C) $14,000 interest revenue

D) $42,000 interest revenue

10. When there is an Allowance for Doubtful Accountsin use, the writing-off of an uncollectible accounts receivablewill:

A). Reduce income

B) Reduce an expense

C). Not change income or totalassets

D). Increase totalassets

11. At the end of January, the unadjusted trialbalance of Windsor, Inc. included the following accounts:

Debit Credit

Sales (80% represent credit sales) 500,000

Accounts Receivable 340,000

Allowance for Doubtful Accounts 800

Refer to the above data. Windsor uses the balance sheet approachin estimating uncollectible accounts expense, and aging theaccounts receivable indicates the estimated uncollectible portionto be $7,400. What is the amount of uncollectible accounts expenserecognized in Windsor's income statement for January?

A). $7,400

B). $6,600

C). $8,200

D). Some otheramount

12. Deegan Industries has an accounts receivableturnover rate of 8. Which of the following statements is nottrue?

A). Deegan's accounts receivableare more liquid than those of a business whose accounts receivableturnover rate is 5

B). Deegan waits approximately 46days to make collections of its credit sales. (Use 365 days in ayear.)

C). Deegan writes off accountsreceivable as uncollectible if they are over 45 daysold.

D). Deegan's net credit sales are about eighttimes the amount of its average accounts receivable

13. Randall, Inc. uses the allowance method supportedby an aging of its accounts receivable to recognize uncollectibleaccounts expense in its financial statements. What method ofrecognizing this expense does Randall use in its income taxreturn?

A). It must use the same method

B). The direct write-offmethod

C). Either the balance sheet or incomestatement approach is acceptable.

D). None, since uncollectible accounts expenseis not deductible for income tax purposes

14. If a 15%, 60-day note receivable is acquired froma customer in settlement of an existing account receivable of$5,000, the accounting entry for acquisition of the note will:

A). Include a debit to Notes Receivable for$5,750

B). Include a debit to Notes Receivable for$5,062.50

C). Include a credit to Interest Revenue for$62.50.

D). Include a debit to Notes Receivable for$5,000 and no entry for interest

15. On June 1, 2009, Jensen Company acquired an 8%,ten-month note receivable from a customer in settlement of anexisting account receivable of $130,000. Interest and principal aredue at maturity. The company has a December 31st year-end. Jensen'sentry to record the collection of this note at maturity includesa:

A). Credit to Accrued Interest Receivable of$6,067

B). Credit to Interest Revenue of$6,067

C). Credit to Interest Receivable of$2,600

D). Credit to Notes Receivable of$140,400

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The independent auditor is allowed to use a specialist for evaluating a complicated financial transaction provided the specialist is

knowledgeable and independent of the audit client.

approved by the client's board of directors.

all of the above.

acceptable to the PCAOB.

Inappropriately dating transfers of funds between bank accounts to cover shortages of cash is properly referred to as

Cash equivalents

represent current assets that can be converted to cash within a year or an operating cycle, whichever is shorter.

include only cash and highly liquid investments that are virtually free of risk.

should be reported as investments and not be included as cash on the balance sheet.

typically exclude money market funds and treasury bills.

A cut-off bank statement primarily is used to

determine whether reconciling items on the year-end bank reconciliation have cleared the bank.

prepare a year-end bank reconciliation.

test for kiting.

confirm the year-end balance of cash.

An imprest cash account

typically is used for many large miscellaneous disbursements.

typically earns large amounts of interest.

is another name for the general cash account of an organization.

is an account containing a stipulated amount of money to be used for a specific purpose.

An auditor may estimate the appropriate amount of interest expense to be recorded by an audit client by multiplying the average debt by the average interest rate. If the auditor's estimate is considerably larger than the client's recorded interest expense this would be evidence of a potential

failure of the client to accrue interest expense at year end.

the violation of significant loan covenants.

overstatement of recorded interest expense.

understatement of long-term debt.

Internal controls over fixed assets in a smaller entity

usually include authorization by the board of directors.

typically will be very similar to internal controls over other assets within the entity.

must be the same as in larger entities.

are of little importance since fixed assets are not subject to theft or misuse.

A change in depreciation methods employed by an audit client resulting in a material change in depreciation expense

is not necessarily a violation of generally accepted accounting principles.

requires disclosure by the audit client in the footnotes to the financial statements.

must be noted in the audit opinion due to lack of consistency.

is properly described by all of the listed statements.

Auditors typically assess inherent risk for material accounts requiring significant estimates as

Which of the following loans from an audit client, which is a financial institution, made in accordance with the normal lending practices of the financial institution would impair the CPA's independence?

A loan fully secured by certificates of deposit from the same financial institution.

A credit card loan in which the balance carried forward each month does not exceed $9,000.

An automobile loan secured by the automobile.

A home loan equal to less than 50% of the home's value and collateralized by the home.

A CPA has obtained some original records from a client during the course of an audit engagement. At the completion of her audit according to the proper professional standards the client fired the CPA and demanded that the CPA return all of his original records immediately. Under these circumstances which of the following statements is most correct according to the AICPA Code of Professional Conduct?

The CPA may hold the original records she obtained until the client pays for the services she has completed.

The CPA must return only the original records of the client upon demand regardless of the circumstances.

The CPA must return all original records and all copies of original records of the client upon demand regardless of the circumstances.

This is a matter of state law and not a matter covered by the AICPA Code of Professional Conduct.

ACT 2200 Lecture Notes - Lecture 4: Financial Statement, List Of The Shield Episodes, Public Company Accounting Oversight Board

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