Q: Which of the following is the correct formula for the Quick (Acid-Test) Ratio?

$$ \text{Quick (acid-test) ratio} = \frac{\text{Cash and cash equivalents} + \text{Short-term investments} + \text{Net current receivables}}{\text{Total current liabilities}} $$

Question 1

Which of the following is NOT one of the three elements of the Fraud Triangle depicted in Exhibit 4-1?

Accepted Answer

Accountability

Question 2

According to Exhibit 4-3, what is the primary function of an internal control system?

Accepted Answer

To prevent fraud, waste, and inefficiency

Question 3

Which of the following is a limitation of internal controls?

Accepted Answer

They can be circumvented by collusion

Question 4

A company receives a check in the mail. According to Exhibit 4-6, which department should prepare the deposit ticket?

Accepted Answer

Treasurer

Question 5

Which of the following best describes the 'imprest system' for petty cash?

Accepted Answer

The sum of the fund plus vouchers paid should always equal the specified balance

Question 6

Which of the following is the correct formula for the Quick (Acid-Test) Ratio?

Accepted Answer

$$ 	ext{Quick (acid-test) ratio} = \frac{	ext{Cash and cash equivalents} + 	ext{Short-term investments} + 	ext{Net current receivables}}{	ext{Total current liabilities}} $$

Question 7

A company sells goods FOB shipping point. When should revenue be recognized according to GAAP?

Accepted Answer

When the goods leave the shipping dock

Question 8

Apple, Inc. sells 30,000 iPhones at $100 each on account. What is the correct journal entry to record this sale?

Accepted Answer

Debit Accounts Receivable $$3,000,000; Credit Sales Revenue 3$$,000,000

Question 9

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

Accepted Answer

LIFO

Question 10

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

Accepted Answer

$79 million

Question 11

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

Accepted Answer

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

Question 12

A company has beginning inventory of $$100, purchases of 350 $$and $450, and sells 40 units using FIFO. What is the cost of goods sold?

Accepted Answer

$540

Question 13

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

Accepted Answer

Aging-of-receivables adjusts the allowance to the amount of uncollectible accounts receivable

Question 14

Which of the following is NOT a component of the internal control system as depicted in Exhibit 4-4?

Accepted Answer

Financial Statement Analysis

Question 15

If a company’s accounts receivable turnover is 10, what is its days’ sales outstanding (DSO)?

Accepted Answer

$$ \frac{365}{10} = 36.5 $$ days

Question 16

Which of the following is a real-world example of collusion circumventing internal controls?

Accepted Answer

Two employees work together to steal cash and cover it up in the records

Question 17

Which of the following is the correct formula for inventory turnover?

Accepted Answer

$$ 	ext{Inventory turnover} = \frac{	ext{Cost of goods sold}}{	ext{Average inventory}} $$

Question 18

Which of the following is a benefit of using the perpetual inventory system?

Accepted Answer

It keeps a running record of all goods bought, sold, and on hand

Question 19

Which of the following is a correct journal entry for writing off an uncollectible account under the allowance method?

Accepted Answer

Debit Allowance for Uncollectible Accounts; Credit Accounts Receivable

Internal Control, Revenue Recognition, Receivables, and Inventory: Exam 2 Review Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards