Claire Billiot, the office manager of a local office supply company, is designing its internal control system. Billiot proposes the following procedures for credit checks on new customers, sales on account, cash collections, and write-offs of uncollectible receivables: a. The Credit Department runs a credit check on all customers who apply for credit. When an account proves uncollectible, the Credit Department authorizes the write off of the account receivable. b. Cash receipts come into the Credit Department, which separates the cash received from the customer remittance slips. The Credit Department lists all cash receipts by customer name and the amount of cash received. c. The cash goes to the treasurer for deposit in the bank. The remittance slips go to the Accounting Department for recording of the collections. d. The controller compares the daily deposit slip to the total amount of the collections recorded. Both amounts must agree. For each of the four procedures, indicate whether the procedure includes an internal control weakness. Explain how employee fraud could occur because of the weakness. What can Claire do to strengthen the internal control system?
> Score More Sports uses the FIFO inventory method. Score More Sports started December with 10 helmets that cost $54 each. On December 19, Score More Sports bought 15 helmets at $52 each. On December 28, Score More Sports sold 12 helmets. Prepare a perpetu
> On April 30, 2016, Seattle First National Bank loaned $100,000 to Pugliese Produce, Inc., on a one-year, 8 percent note. Requirements 1. Compute the interest for the years ended December 31, 2016 and 2017, on the note. Round interest calculations to th
> Gabby’s Bakery Company reported sales revenue of $148,000 and cost of goods sold of $93,000. Requirements 1. Compute Gabby’s Bakery Company’s correct gross profit assuming the company’s ending inventory is overstated by $1,500. Show your work. 2. Compu
> On January 2, 2016, Evergreen Lighting purchased showroom fixtures for $18,000 cash, expecting the fixtures to remain in service for 5 years. Evergreen Lighting has depreciated the fixtures on a straight-line basis, with zero residual value. On August 2,
> River City Supply, Inc., uses the allowance method to account for uncollectible accounts. On December 31, 2016, Allowance for Uncollectible Accounts has a $375 credit balance. Journalize the year-end adjusting entry for uncollectible accounts assuming th
> Top Fuel Auto Parts, Inc., had the following FIFO perpetual inventory record for one of its inventory items at November 30, the end of the fiscal year. A physical count of the inventory performed at year-end revealed $172.20 (28 items) of inventory o
> Putnam Freight purchased a building for $500,000 and depreciated it on a straight-line basis over a 30-year period. The estimated residual value was $80,000. After using the building for 15 years, Putnam realized that wear and tear on the building would
> On December 31, 2016, the Accounts Receivable balance of TDS Distribution, Inc., is $194,000. The Allowance for Uncollectible Accounts has a $1,200 credit balance. TDS Distribution, Inc., prepares the following aging schedule for its accounts receivable:
> Eaton Supply, Inc., has the following account balances at May 31, 2016. The inventory balance was determined using FIFO. Eaton Supply, Inc., has determined that the replacement cost (current market value) of the May 31, 2016, ending inventory is $35,
> Mercy Medical Center bought equipment on January 2 for $42,000. The equipment was expected to remain in service for four years and to perform 1,200 operations. At the end of the equipment’s useful life, Mercy estimates that its residual value will be $6,
> DJ’s Auto Repair, Inc., ended December 2015 with Accounts Receivable of $8,500 and a credit balance in Allowance for Uncollectible Accounts of $275. During January 2016, DJ’s Auto Repair, Inc., completed the following transactions: Requirements 1. P
> Sundaze Boats guarantees its boats for three years or 1,500 hours, whichever comes first. Industry experience indicates that Sundaze can expect warranty costs will equal 4 percent of sales. Assume in its first year, Sundaze Boats had sales totalling $607
> Assume Alpine Tire, Inc., completed the following perpetual inventory transactions for a line of tires. Requirements 1. Compute cost of goods sold and gross profit under FIFO. 2. Compute cost of goods sold and gross profit using LIFO. 3. Compute cos
> On January 1 of year 1, Standard Hardware, Inc., purchased equipment at a cost of $52,000. Management expects the equipment to remain in service for fve years, with zero residual value. Standard Hardware, Inc., uses the straight-line depreciation method.
> Ellison Heating and Air Conditioning, Inc., uses the direct write-off method to account for bad debts. Record the following transactions that occurred during the year:
> Refer to the data for Bello’s Bikes, Inc., in E5-19A. Data from E5-19A: Assume Bello’s Bikes, Inc., bought and sold a line of mountain bikes during October as follows: Bello’s Bikes, Inc., uses the perpetual inventory system. Requirements 1. Compu
> Westwood Tanning Salon bought three tanning beds in a $19,000 lump-sum purchase. An independent appraiser valued the tanning beds as follows: Westwood Tanning Salon paid $8,000 in cash and signed a note payable for $11,000. Record the purchase in the
> Information from Karev Photography’s Cash account as well as the January bank statement are presented next. Check #210 was written for $310 to pay salaries expense. Requirements 1. Prepare the bank reconciliation on January 31. 2. Prepare all ne
> Assume Bello’s Bikes, Inc., bought and sold a line of mountain bikes during October as follows: Bello’s Bikes, Inc., uses the perpetual inventory system. Requirements 1. Compute the cost of ending inventory under FIFO. 2. Compute the cost of ending
> Whelan Transfer manufactures conveyor belts. Early in August 2016, Whelan Transfer constructed its own building at a materials, labor, and overhead cost of $910,000. Whelan Transfer paid cash for the construction costs. Whelan Transfer also paid for arch
> Cryer’s Produce, Inc.’s checkbook lists the following: Cryers’s Produce, Inc.’s November bank statement shows the following: Requirements 1. Prepare Cryer’s Produce, Inc.’s bank reconciliation on November 30, 2016. How much cash does Cryer’s Pro
> Refer to the data for E5-16A. However, instead of the FIFO method, assume Golfer’s Delight, Inc., uses the average cost method. Data from E5-16A: Golfer’s Delight, Inc., carries a line of titanium putters. Golfer’s Delight, Inc., uses the FIFO method an
> Your company sells $90,000 of goods, and you collect sales tax of 8 percent. What current liability does the sale create? a. Sales Revenue of $97,200 b. Accounts Payable of $7,200 c. Unearned Revenue of $7,200 d. Sales Tax Payable of $7,200
> Murphy Industrial Systems purchased land, paying $70,000 cash as a down payment and signing a $150,000 note payable for the balance. In addition, Murphy Industrial Systems paid delinquent property tax of $1,800, title insurance costing $2,700, and a $5,5
> Calculate the answers for the missing data:
> Refer to the data for E5-16A. However, instead of the FIFO method, assume Golfer’s Delight, Inc., uses the LIFO method. Data from E5-16A: Golfer’s Delight, Inc., carries a line of titanium putters. Golfer’s Delight, Inc., uses the FIFO method and a perp
> Specify how each of the following items would be reported in the financial statements of Cunnington Enterprises for its current fiscal year. Also specify the amount that would appear on the statement. Some items may be reported on more than one financial
> Calculate accounts receivable turnover for the following two companies:
> Golfer’s Delight, Inc., carries a line of titanium putters. Golfer’s Delight, Inc., uses the FIFO method and a perpetual inventory system. The sales price of each putter is $195. Company records indicate the following activity for putters for the month o
> Classify each of the following as: Trading security (T) Available-for-sale security (A) Held-to-maturity security (H) None of the above (N) ______ 1. A bond that management plans on owning until it is repaid; management does not believe it will need to
> Calculate the quick assets and the quick ratio for each of the following companies:
> Swanson, Incorporated’s sales for the year ended March 31, 2016, were $1,275,000, and cost of goods sold amounted to $728,000. Beginning inventory was $55,000, and ending inventory was $68,000. Compute Swanson, Incorporated’s rate of inventory turnover f
> Bargain Oil, a small Texas oil company, holds huge reserves of oil. Assume that at the end of 2016, Bargain Oil’s cost of oil reserves totaled approximately $14.4 million, representing 1.2 million barrels of oil reserves in the ground. Requirements 1.
> What journal entry is made when unearned revenue is earned?
> Pacific Bank lent $125,000 to Robert Simmons on a 30-day, 6 percent note. Record the following transactions for Pacific Bank (explanations are not required): 1. Lending the money on June 12 2. Collecting the principal and interest at maturity (specify t
> Let’s resume our examination of Dick’s Sporting Goods (Dick’s). Return to Dick’s Annual Report (see the Continuing Financial Statement Analysis Problem in Chapter 2 for instructions on how to access the Annual Report). Now answer the following questions:
> Haskin’s Wholesale began the year with inventory of $51,600 and made purchases of $326,800 during the year. Sales for the year are $505,300, and Haskin’s Wholesale’s gross profit percentage is 38 percent of sales. Compute Haskin’s Wholesale’s estimated c
> On April 1, Micro Apps paid $750,000 to acquire a patent on software. Micro Apps expects the patent to have a useful life of five years. Requirements 1. Journalize the entry to record the purchase of the patent on April 1. 2. Journalize the entry to re
> For each of the following notes receivable, compute the amount of interest revenue earned during 2016. Use a 360-day year, and round to the nearest dollar.
> Describe the major differences between US GAAP and International Financial Reporting Standards.
> Inland Industrial Supply’s income statement data for the year ended December 31 2016, follow Assume the ending inventory was accidentally overstated by $3,200 in 2016. How would the inventory error affect Inland Industrial Supply’s cost of goods sold
> When one media company buys another, goodwill is often the most costly asset acquired. TXL Publishing paid $925,000 to acquire the Thrifty Nickel, a weekly advertising paper. At the time of the acquisition, the Thrifty Nickel’s balance sheet reported tot
> Match the term with its definition by placing the corresponding letter in the space provided: ______ 1. A written promise to pay a specified amount of money at a particular future date ______ 2. The date when final payment of the note is due; also calle
> What are the main provisions of the Sarbanes-Oxley Act? Be specific.
> Identify each of the following as land (L) or land improvements (LI): ______ 1. Survey fees ______ 2. Fencing ______ 3. Lighting ______ 4. Clearing land ______ 5. Parking lot
> Inland Industrial Supply’s income statement data for the year ended October 31, 2016, follow. Assume the ending inventory was accidentally overstated by $2,800. What are the correct amounts for cost of goods sold and gross profit?
> According to the Real World Accounting Video, a working capital loan is used to finance _______________. a. buildings and equipment b. intangible assets c. current assets d. tangible assets
> Top Flight Airways purchased a baggage-handling truck for $64,000. Suppose Top Flight Airways sold the truck on December 31, 2016, for $42,000 cash, after using the truck for three full years and accumulating depreciation of $27,000. Make the journal ent
> According to the Real World Accounting Video, the cost of a fixed asset minus its estimated residual value is called an asset’s ____________________. a. cost b. depreciable cost c. liquidation value d. depreciation expense
> According to the Real World Accounting Video, cash sales account for approximately _______ of all sales at Alphabet City Beer. a. half, or 50 percent b. a quarter, or 25 percent c. none, or 0 percent d. all, or 100 percent
> Place the corresponding letter of the defnition next to the term. _______ 1. Unqualifed opinion _______ 2. Audit _______ 3. IFRS _______ 4. GAAP _______ 5. External audit _______ 6. CPA _______ 7. FASB _______ 8. Qualifed opinion _______ 9. IASB _______
> According to the Real World Accounting Video, CPAs are very special people in the accounting world. The initials CPA stand for _______. a. Chartered Public Auditor b. Certified Public Accountant c. Certified Pubic Auditor d. Commerce Practicing Accountan
> Match the accounting terms on the right with the corresponding definitions on the left a. Conservatism b. Full-disclosure c. LIFO d. Average cost e. FIFO f. Consistency g. Materiality h. Specific-Identification ______ 1. Assigns the most recent invento
> In the Real World Accounting Video, Bill Mencer talks about being a controller. A controller is _______________. a. the individual who controls the production of a product b. the individual who controls the hiring and firing of all personnel c. the indi
> How should a capital expenditure for a long-term asset be recorded? a. Debit a liability b. Debit an expense c. Debit capital d. Debit an asset
> Classify each of the following expenditures for machinery as a capital expenditure (CAP) or a revenue expenditure (REV): a. Purchase price b. Ordinary recurring repairs to keep the machinery in good working order c. Lubrication of the machinery before i
> According to the Real World Accounting Video, a quantitative expression of a plan is called a ____________________. a. directive b. scheme c. budget d. dream
> Umbrella.com had the following balances on December 31, 2016, before the year-end adjustments: The aging of receivables yields these data: Journalize Umbrella’s entry to adjust the allowance account to its correct balance on December 31, 2016.
> In the Real World Accounting Video, Zachery Mack talks about the challenges of cash management. He was able to survive a catastrophe due to Hurricane Sandy. He was able to pay his bills and keep his business operating. He attributed his survival to which
> Each of the following situations has an internal control weakness. a. Crystal Lund has been your trusted employee for 25 years. She performs all cash handling and accounting duties. Crystal just purchased a new Lexus and a new home in an expensive subur
> According to the Real World Accounting Video, Generally Accepted Accounting Principles (GAAP) provide all of the following except _______. a. standardization b. investor confidence c. comparability d. confusion
> At the end of the current year, Cottage Cafe’s inventory account balance was $13,550. A physical count of the inventory revealed that inventory on hand totaled $13,480. What amount should Cottage Cafe report on its balance sheet for inventory?
> A company recognizes a lease as a capital lease when a. the lease transfers title of the leased asset to the lessee at the end of the lease term. b. the present value of the lease payments is less than 90 percent of the market value of the leased asset.
> What are some ways that companies might use improper recording of liabilities to manipulate financial statements?
> On January 1, Harry’s Hot Dogs purchased a hot dog stand for $120,000 with an estimated useful life of 10 years and no residual value. Suppose that after using the hot dog stand for four years and straight-line depreciation, the company determines that t
> What is a lump-sum purchase of assets? How does a company determine how much to allocate to each asset purchased in a lump-sum purchase?
> Which intangible asset is recorded only as part of the acquisition of another company? a. Franchise b. Patent c. Goodwill d. Copyright
> Complete the following analogies. What are some similarities and differences between the two concepts involved in each? a. Depreciation is to fixed assets as ____________________ is to intangible assets. b. Depreciation is to fixed assets as ___________
> Bright Smile Dental Group started 2016 with Accounts Receivable of $134,000 and a credit balance in Allowance for Uncollectible Accounts balance of $9,000. The following information relates to Bright Smile Dental’s 2016 operations: a. Credit sales, $322
> On December 31, you have a $15,000 note receivable from a customer. Interest of 5 percent has also accrued for eight months on the note. What will your financial statements report for this situation? a. The balance sheet will report the note receivable o
> Recently, the United States was in a recession. What would be the expected effect of a recession on accounts receivable turnover ratios?
> Identify the missing internal control in the following situations. Select from these activities: • Proper authorization • Separation of duties • Adequate documents and records a. While reviewing the records of Discount Drug, you find that the same e
> Which of the following is false regarding the Sarbanes-Oxley act? a. It requires that external auditors report to the company president. b. It established the PCAOB. c. It applies to publicly traded companies. d. It requires that the company CEO certify
> What is the difference between a rules-based system and a principles-based system of accounting rules? Under what circumstances would each be preferable? How does the distinction apply to the comparison of US GAAP to IFRS?
> Assume Bob’s Boards has the following LIFO perpetual inventory record for skateboards for the month of March: At March 31, the accountant for Bob’s Boards determines that the current replacement cost of the ending inventory is $10,640. Make any adjus
> Martin’s bonds pay interest semi-annually on July 1 and January 1. If its fiscal year ends on September 30, which statement is true of Martin’s year-end adjusting journal entry for bond interest? a. Martin must record three months’ accrued interest expe
> The T-account for cash and the bank statement of Sinclair Food Services for the month of October 2016 follows: Prepare Sinclair Food Services’ bank reconciliation at October 31.
> On April 30, 2016, Dawson Co., borrowed $6,000 on a one-year, 9 percent note payable. What amounts would Dawson Co., report for the note payable and the related interest payable on its balance sheet at July 31, 2016, and on its income statement for the y
> Nugget Company’s balance sheet on December 31, 20X6, was as follows: On December 31, 20X6, Gold Company acquired all of Nugget’s outstanding common stock for $1,500,000 cash. On that date, the fair (market) value of
> Beni Corporation acquired 100 percent of Carr Corporation’s outstanding capital stock for $430,000 cash. Immediately before the purchase, the balance sheets of both corporations reported the following: At the date of purchase, the fai
> Wright Corporation includes several subsidiaries in its consolidated financial statements. In its December 31, 20X2, trial balance, Wright had the following intercompany balances before consolidation entries: In its December 31, 20X2, consolidated bala
> Select the most appropriate answer for each of the following questions. 1. Goodwill is a. Seldom reported because it is too difficult to measure. b. Reported when more than book value is paid in purchasing another company. c. Reported when the fair value
> Most subsidiaries are wholly owned, although only majority ownership is usually all that is required for consolidation. The parent’s ownership may be direct or indirect. Frequently, a parent’s direct subsidiaries have subsidiaries of their own, thus prov
> Top Corporation acquired 100 percent of Sun Corporation’s common stock on December 31, 20X2. Balance sheet data for the two companies immediately following the acquisition follow: At the date of the business combination, the book valu
> Astor Corporation’s balance sheet at January 1, 20X7, reflected the following balances: Phel Corporation, which had just entered into an active acquisition program, acquired 100 percent of Astor’s common stock on Jan
> Gold Enterprises acquired 100 percent of Premium Builders’ stock on December 31, 20X4. Balance sheet data for Gold and Premium on January 1, 20X5, are as follows: At the date of the business combination, Premium’s ca
> Blank Corporation acquired 100 percent of Faith Corporation’s common stock on December 31, 20X2, for $189,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: At the date
> Road Corporation acquired all of Conger Corporation’s voting shares on January 1, 20X2, for $470,000. At that time Conger reported common stock outstanding of $80,000 and retained earnings of $130,000. The book values of Conger’s assets and liabilities a
> Reed Corporation acquired 100 percent of Thorne Corporation’s voting common stock on December 31, 20X4, for $395,000. At the date of combination, Thorne reported the following: At December 31, 20X4, the book values of Thorneâ
> Crumple Car Rentals is planning to expand into the western part of the United States and needs to acquire approximately 400 additional automobiles for rental purposes. Because Crumple’s cash reserves were substantially depleted in replacing the bumpers o
> On June 10, 20X8, Tower Corporation acquired 100 percent of Brown Company’s common stock. Summarized balance sheet data for the two companies immediately after the stock acquisition are as follows: Required a. Give the consolidation
> Turner Corporation reported the following balances at January 1, 20X9: On January 1, 20X9, Gross Corporation purchased 100 percent of Turner’s stock. All tangible assets had a remaining economic life of 10 years at January 1, 20X9. Bo
> Rod Corporation purchased 100 percent ownership of Stafford Corporation on January 1, 20X4, for $65,000, which was $10,000 above the underlying book value. Half the additional amount was attributable to an increase in the value of land held by Stafford,
> During review of the adjusting entries to be recorded on December 31, 20X8, Grand Corporation discovered that it had inappropriately been using the cost method in accounting for its investment in Case Products Corporation. Grand purchased 100 percent own
> Branch Corporation purchased 100 percent of Hardy Company’s common stock on January 1, 20X5, and paid $28,000 above book value. The full amount of the additional payment was attributed to amortizable assets with a life of eight years remaining at January
> Brindle Company purchased 100 percent of Monroe Company’s voting common stock for $648,000 on January 1, 20X4. At that date, Monroe reported assets of $690,000 and liabilities of $230,000. The book values and fair values of Monroe’s assets were equal exc
> Capital Corporation purchased 100 percent of Cook Company’s stock on January 1, 20X4, for $340,000. On that date, Cook reported net assets with a historical cost of $300,000 and a fair value of $340,000. The difference was due to the increased value of b
> Best Corporation acquired 100 percent of the voting common stock of Flair Company on January 1, 20X7, by issuing bonds with a par value and fair value of $670,000 and making a cash payment of $24,000. At the date of acquisition, Flair reported assets of
> Power Corporation purchased 100 percent of the common stock of Snow Corporation on January 1, 20X2, by issuing 45,000 shares of its $6 par value common stock. The market price of Power’s shares at the date of issue was $24. Snow reported net assets with
> Roller Corporation purchased 100 percent ownership of Steam Company on January 1, 20X5, for $270,000. On that date, the book value of Steam’s reported net assets was $200,000. The excess over book value paid is attributable to depreciab
