ADM 1340 Chapter Notes - Chapter 5: Accounts Receivable, Perpetual Inventory, Debits And Credits

1-Principal __________________ fall into three categories: depository institutions (banks), contractual savings institutions, and investment intermediaries.

Financial markets security exchanges financial intermediaries’ investment funds

Savings institutions

bitcoin/annuity payments securities/investment advice

2-Deposits that are payable on demand but do not allow their owner to write checks are called _______________.

Restricted deposits savings deposits time sensitive deposits non-checkable deposits demand deposits

3-Deposit with fixed terms to maturity are called ___________.

Relative deposits term deposits fixed deposits restricted deposits time deposits

4-Commercial banks ___________ primarily by issuing checking deposits, savings accounts, and time deposits.

Increase profits decrease cost attract investors raise funds increase assets

5-A type of depository institution that over time has become more like commercial banks and are now more competitive with each other are called ______________ associations and mutual savings banks.

savings and loan contractual savings institutions, investment intermediaries

crowd funding sites deposit and loan

6-Credit unions are typically very small cooperative lending institutions organized around a particular _____________________: members of the same union, employees of a particular firm, and members of the same profession, such as teachers.

Type of investment corporation financial strategy risk avoidance strategy

group that have something in common

7-Insurance companies and pension funds are examples of ________________ institutions.

contractual savings depository institutions (banks), investment intermediaries entrepreneurial at risk

8-Contractual savings institutions (CSI’s) acquire funds at _______________ on a contractual basis.

Estate sales periodic intervals bankruptcy auctions liquidations initial offerings

9-CSI’s do not worry as much as banks about losing funds quickly because they can predict with reasonable accuracy how much they will have to pay out in ___________ in coming years.

Interest payments dividends bank notes benefits IOU’s

10-_______________ is not as important a consideration for CSI’s as it is for banks.

Types of customers adverse selection Liquidity of assets portfolio diversification liabilities

11-CSI investments are typically ____________ such as corporate bonds, stocks, and mortgages.

Short-term securities long-term securities 3-month term securities overnight securities short-term assets

12-Companies that insure people against financial hazards following a death and sell annuities are called ________________________.

Predatory companies over-the-counter companies risky companies life insurance companies depository companies

13-_________________ that people pay to keep their policies in force constitute the funds life insurance companies use to buy corporate bonds and mortgages.

Interest dividends installments late fees Premiums

14-Companies that ___________ their policyholders against loss from theft, fire, and accidents are called fire and casualty insurance companies.

Insure Hold harmless guarantee advise oversee

15-Fire and casualty insurance companies acquire funds through the _________________ for their policies.

Sale of stock liquidation of collection of premiums interest payments dividends

16-Because of the greater possibility of loss of funds if major disasters occur, fire and casualty companies buy more ________________ than life insurance companies do.

Comprehensive insurance liquid assets risky assets corporate insurance bankruptcy insurance

17-Private pension funds and state and local retirement funds provide _______________ in the form of annuities to employees who are covered by a pension plan.

Dividends revenue stock options retirement income loans

18-Pension funds acquire funds from _____________ from employers and employees.

Fees pledges contributions garnishments payroll deductions

19-The largest ______________ of pension funds are corporate bonds and stocks.

Liability holdings asset holdings interest payments dividend payments fees

20-_________________________ include; finance companies, mutual funds and money market mutual funds.

depository institutions (banks), contractual savings institutions, stock markets

bond markets Investment intermediaries

21-Finance companies raise funds by ___________ commercial paper and by ____________ stocks and bonds.

Issuing/selling selling/buying selling/ issuing buying/issuing discounting/shorting

22-Finance companies lend these funds to __________, who make purchases of such items as furniture, automobiles, and home improvements, and to small businesses.

-depository institutions (banks), consumers contractual savings institutions,

investment intermediaries corporations

23-It is common for a finance company to be organized by a parent corporation to help _______________, such as; ford motor credit company.

Diversify its portfolio acquire assets liquidate liabilities sell its product off set profits

24-Selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds describes how _______________ acquire funds.

depository institutions (banks), mutual funds contractual savings institutions

stock markets bond markets

25-Shareholders can sell shares at any time but shares are subject to value fluctuations therefore mutual fund investments can be _______.

risky Subject to high returns certain investments interest rate neutral misunderstood

26-Money market funds sell _______ like mutual funds and offer checking accounts like ___________.

Deposits/insurance companies bonds/banks shares/insurance companies

Shares/ banks stock options/crowd sourcing sites

27-Money market funds invest in ________ and very ____________ and interest on these assets is paid out to the shareholders.

High risk/non-liquid junk bonds/risky assets low risk/ liquid assets low risk/junk bonds sub-prime securities/liquid assets

28-Money market funds have experienced extraordinary growth primarily because people like the idea of having a checking account that ____________________.

Has no fees pays them interest offers overdraft protection pays dividends

always has money in it

29-Investment banks help a ______________ issue securities.

Person foreign country stock market corporation bond market

30-Investment banks advises the corporation on which type of ______________ to issue; stocks or bonds.

Insurance loans interest rates dividends products securities

31-Investment banks help sell the corporations securities by purchasing them from the corporation and _______ them in the market.

Discounting re-selling insuring advertising financing

32-Investment banks also act as ___________ and earn enormous fees by helping corporations acquire other companies through mergers or acquisitions.

Depositories money launders deal makers insurance companies entrepreneurs

Financial Accounting, 14th Edition

Carl S. Warren; Jim Reeve; Jonathan Duchac

Final_Multiple choice

1. The primary objectives of control over inventory are

a.safeguarding the inventory from damage and maintainingconstant observation of the inventory

b.reporting inventory in the financial statements

c.maintaining constant observation of the inventory andreporting inventory in the financial statements

d.safeguarding inventory from damage and reporting inventory inthe financial statements

2. When merchandise sold is assumed to be in the order in whichthe purchases were made, the company is using

a.first-in, last-out

b.first-in, first-out

c.last-in, first-out

d.average cost

3. Use the information below to answer the followingquestion.

The Boxwood Company sells blankets for $60 each. The following wastaken from the inventory records during May. The company had nobeginning inventory on May 1.

Assuming that the company uses the perpetual inventory system,determine the gross profit for the sale of May 23 using the FIFOinventory cost method.

a.$72

b.$108

c.$180

d.$120

4.If merchandise inventory is being valued at cost and thepurchase price is steadily falling, which method of costing willyield the largest net income?

a.FIFO

b.LIFO

c.average cost

d.weighted average

5.Stevens Company started the year with an inventory cost of$145,000. During the month of January, Stevens purchased inventorythat cost $53,000. January sales totaled $140,000. Estimated grossprofit is 35%. The estimated ending inventory as of January 31is

a.$58,000

b.$107,000

c.$69,300

d.$91,000

6. Which one of the following below is not anelement of internal control?

a.risk assessment

b.cost-benefit considerations

c.monitoring

d.information and communication

7. A check drawn by a company for $340 in payment of a liabilitywas recorded in the journal as $430. What entry is required in thecompany's accounts?

a.debit Cash; credit Accounts Receivable

b.debit Accounts Receivable; credit Cash

c.debit Accounts Payable; credit Cash

d.debit Cash; credit Accounts Payable

8. A bank reconciliation should be prepared

a.to explain any difference between the company's balance perbooks with the balance per bank

b.by the company's bank

c.whenever the bank refuses to lend the company money

d.by the person who is authorized to sign checks

9.

Pilger Corporation has cash on hand at year-end of $201,000 anda negative cash flow from operations of $144,000. What is the ratioof cash to monthly cash expenses?

a.1.4 months

b.7.2 months

c.12.0 months

d.16.8 months

10. When does an account become uncollectible?

a.when accounts receivable is converted into notesreceivable

b.when a discount is availed on notes receivable

c.at the end of the fiscal year

d.there is no general rule for when an account becomesuncollectible

11.On the balance sheet, the amount shown for the Allowance forDoubtful Accounts is equal to the

a.total estimated uncollectible accounts as of the end of theyear

b.sum of all accounts that are past due

c.total of the accounts receivables written-off during theyear

d.uncollectible accounts expense for the year

12. Allowance for Doubtful Accounts has a debit balance of $600at the end of the year (before adjustment), and an analysis ofaccounts in the customers ledger indicates uncollectiblereceivables of $13,000. Which of the following entries records theproper adjusting entry for bad debt expense?

a.debit Allowance for Doubtful Accounts, $600; credit Bad DebtExpense, $600

b.debit Bad Debt Expense, $600; credit Allowance for DoubtfulAccounts, $600

c.debit Bad Debt Expense, $13,600; credit Allowance for DoubtfulAccounts, $13,600

d.debit Bad Debt Expense, $12,400; credit Allowance for DoubtfulAccounts, $12,400

13. When comparing the direct write-off method and the allowancemethod of accounting for uncollectible receivables, a majordifference is that the direct write-off method

a.is used primarily by small companies with few receivables

b.is used primarily by large companies with many receivables

c.uses an allowance account

d.uses a percentage of sales method to estimate uncollectibleaccounts

14. Accumulated Depreciation

a. is used to show the amount of cost expiration ofintangibles

b.is used to show the amount of cost expiration of naturalresources

c.is the same as Depreciation Expense

d.is a contra asset account

15. Equipment with a cost of $220,000 has an estimated residualvalue of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method. What is theamount of depreciation for the first full year, during which theequipment was used 2,100 hours?

a.$19,000

b.$21,000

c.$30,000

d.$22,000

16. The process of transferring the cost of metal ores and otherminerals removed from the earth to an expense account is called

a.depreciation

b.depletion

c.amortization

d.deferral

17. The Bacon Company acquired new machinery with a price of$15,200 by trading in similar old machinery and paying $12,700. Theold machinery originally cost $9,000 and had accumulateddepreciation of $5,000. In recording this transaction, BaconCompany should record

a.a loss of $1,500

b.the new machinery at $12,700

c.a gain of $1,500

d.the new machinery at $16,700

18. Assuming a 360-day year, when a $50,000, 90-day, 9%interest-bearing note payable matures, total payment will be

a.$54,500

b.$4,500

c.$1,125

d.$51,125

19. Which of the following is required to be withheld fromemployee's gross pay?

a.only federal income tax

b.both federal and state unemployment compensation taxes

c.only state unemployment compensation tax

d.only federal unemployment compensation tax

20. Hall Company sells merchandise with a one-year warranty. Inthe current year, sales consisted of 4,500 units. It is estimatedthat warranty repairs will average $10 per unit sold, and 30% ofthe repairs will be made in the current year and 70% in the nextyear. In the current year's income statement, Hall should showwarranty expense of

a.$45,000

b.$0

c.$13,500

d.$31,500

21. Which of the following below is not acharacteristic of a limited liability company?

a.limited legal liability

b.unlimited life

c.taxable

d.moderate ability to raise capital

22. Seth and Beth have original investments of $50,000 and$100,000 respectively in a partnership. The articles of partnershipinclude the following provisions regarding the division of netincome: interest on original investment at 10%; salary allowancesof $27,000 and $18,000, respectively; and the remainder to bedivided equally. How much of the net income of $42,000 is allocatedto Seth?

a.$20,000

b.$23,000

c.$32,000

d.$0

23. Which of the following is not a rightpossessed by common stockholders of a corporation?

a.the right to share in assets upon liquidation

b.the right to receive a minimum amount of dividends

c.the right to sell their stock to anyone they choose

d.the right to vote in the election of the board ofdirectors

24. The charter of a corporation provides for the issuance of100,000 shares of common stock. Assume that 45,000 shares wereoriginally issued and 5,000 were subsequently reacquired. What isthe amount of cash dividends to be paid if a $2 per share dividendis declared?

a.$80,000

b.$100,00

c.$90,000

d.$10,000

25.Which statement below is not a reason for acorporation to buy back its own stock?

a.to increase the shares outstanding

b.for supporting the market price of the stock

c.resale to employees

d.bonus to employees

Dynamic Energy Wares (DEW) manufactures and distributes productsthat are used to save energy and to help reduce and reverse theharmful environmental effects of atmospheric pollutants. DEW relieson a relatively complex distribution system to get the products toits customers. Large companies, which account for nearly 30% of thefirm’s total sales, purchase directly from DEW. Smaller companiesand retailers that sell to individuals are required to make theirpurchases from one of the 50 independent distributors that arecontractually obligated to exclusively sell DEW’s products.

DEW’S accountants have just finished the firm’s financialstatements for the third quarter of the fiscal year, which ended 3weeks ago. The results are terrible. Profits are down 30% from thistime last year, when a downturn in sales began. Profits aredepressed primarily because DEW continues to lose market share to acompetitor that entered the field nearly 2 years ago.

Senior management has decided it needs to take action to boostsales in the fourth quarter so that year-end profits will be “moreacceptable.” Starting immediately, DEW will (1) eliminate alldirect sales, which means that large companies must purchaseproducts from DEW’s distributors, just as the smaller companies andretailers do; (2) require distributors to maintain certain minimuminventory levels, which are much higher than previous levels; and(3) form a task force to study and propose ways that the firm canrecapture its lost market share.

The financial manager, who is your boss, has asked you to attenda hastily called meeting of DEW’s distributors to announce theimplementation of these operational changes. At the meeting, thedistributors will be informed that they must increase inventory tothe required minimum level before the end of DEW’s current fiscalyear or face losing the distributorship. According to your boss,the reason for this requirement is to ensure that distributors canmeet the increased demand they will face when the large companiesare no longer permitted to purchase directly from DEW. The salesforecast you have been developing over the past few months,however, indicates that distributors’ sales are expected to declineby almost 10% during the next year. As a consequence, the addedinventories might be extremely burdensome to the distributors. Whenyou approached your boss to discuss this potential problem, shesaid, “Tell the distributors not to worry! We won’t require paymentfor six months, and any additional inventory that remains unsoldafter nine months can be returned. But they must take delivery ofthe inventory within the next two months.”

It appears that the actions implemented by DEW will producefavorable year-end sales results for the current fiscal year. Doyou agree with the decisions made by DEW’s senior management? Willyou be comfortable announcing the changes to DEW’s distributors?How would you respond to a distributor who says, “DEW doesn’t careabout us. The company just wants to look good no matter who getshurt—that’s unethical”? What will you say to your boss? Will youattend the distributors’ meeting?