Q: Apple, Inc. sells 30,000 iPhones to AT&T Wireless for $100 each on account. What is the correct journal entry to record the sale?

$$\begin{align*} \text{Accounts Receivable} & \quad 3,000,000 \\ \text{Sales Revenue} & \quad 3,000,000 \end{align*}$$

Q: A company estimates that 1% of its $200 million sales will be returned. What is the correct journal entry to record the estimated sales returns?

$$\begin{align*} \text{Sales Returns and Allowances} & \quad 2,000,000 \\ \text{Sales Refunds Payable} & \quad 2,000,000 \end{align*}$$

Q: The quick (acid-test) ratio is calculated as:

$$\frac{\text{Cash and cash equivalents} + \text{Short-term investments} + \text{Net current receivables}}{\text{Total current liabilities}}$$

Question 1

Which of the following is NOT one of the three elements of the Fraud Triangle?

Accepted Answer

Collusion

Question 2

A company is considering implementing a new internal control system. Which of the following best describes the primary function of internal controls?

Accepted Answer

To protect company assets by preventing fraud, waste, and inefficiency

Question 3

Which of the following is an example of the 'separation of duties' internal control procedure?

Accepted Answer

Assigning different employees to asset handling, record keeping, and transaction approval

Question 4

A company receives checks by mail. According to best practices for internal controls, which department should be responsible for preparing the deposit ticket?

Accepted Answer

Treasurer

Question 5

Which of the following is a limitation of internal controls?

Accepted Answer

They can be circumvented by collusion or management override

Question 6

Under the revenue recognition principle, when should revenue be recognized?

Accepted Answer

When goods are delivered or services performed

Question 7

Apple, Inc. sells 30,000 iPhones to AT&T Wireless for $100 each on account. What is the correct journal entry to record the sale?

Accepted Answer

$$\begin{align*} 	ext{Accounts Receivable} & \quad 3,000,000 \ 	ext{Sales Revenue} & \quad 3,000,000 \end{align*}$$

Question 8

A company estimates that 1% of its $200 million sales will be returned. What is the correct journal entry to record the estimated sales returns?

Accepted Answer

$$\begin{align*} 	ext{Sales Returns and Allowances} & \quad 2,000,000 \ 	ext{Sales Refunds Payable} & \quad 2,000,000 \end{align*}$$

Question 9

Which of the following best describes the allowance method for uncollectible accounts?

Accepted Answer

It estimates uncollectible accounts based on past experience and matches expense to revenue

Question 10

A company uses the percent-of-sales method and estimates uncollectible accounts expense as 0.0002 of total revenues. If total revenues are $394,328 million, what is the uncollectible-accounts expense?

Accepted Answer

$$79 million$$

Question 11

Which inventory costing method results in the lowest taxable income when costs are rising?

Accepted Answer

LIFO

Question 12

If a company uses the FIFO method during a period of rising prices, what will be the effect on cost of goods sold (COGS) and ending inventory?

Accepted Answer

COGS will be lowest and ending inventory will be highest

Question 13

A company has beginning inventory of $$100 (10 units @ 10$$), purchases 25 units @ $$14 and 25 units @ 18$$, and sells 40 units. Using FIFO, what is the cost of goods sold?

Accepted Answer

$$540$$

Question 14

Which of the following best describes the lower-of-cost-or-market (LCM) rule?

Accepted Answer

Inventory is reported at the lower of its historical cost or market value

Question 15

The quick (acid-test) ratio is calculated as:

Accepted Answer

$$\frac{	ext{Cash and cash equivalents} + 	ext{Short-term investments} + 	ext{Net current receivables}}{	ext{Total current liabilities}}$$

Question 16

Which of the following is a key difference between the percent-of-sales and aging-of-receivables methods for estimating uncollectible accounts?

Accepted Answer

Percent-of-sales adjusts the allowance by the amount of uncollectible-account expense, while aging-of-receivables adjusts it to the amount of uncollectible accounts receivable

Question 17

A company has net credit sales of $$500,000 and average net accounts receivable of 50$$,000. What is the accounts receivable turnover ratio?

Accepted Answer

$$10$$

Question 18

If a company’s accounts receivable turnover ratio is 8, what is the days' sales outstanding (DSO)?

Accepted Answer

$$\frac{365}{8} = 45.625$$

Question 19

Which of the following is a real-world example of the application of the lower-of-cost-or-market rule?

Accepted Answer

A retailer writes down the value of unsold holiday merchandise to its current selling price

Internal Control, Receivables, and Inventory: Study Guide for Financial Accounting

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