Q: If a company uses the imprest system for petty cash, which equation must always be true?

$$\text{Petty Cash Fund} + \text{Petty Cash Vouchers Paid} = \text{Specified Balance}$$

Q: Which formula correctly calculates the quick (acid-test) ratio?

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

Q: Which formula is used to calculate inventory turnover?

$$\frac{\text{Cost of goods sold}}{\text{Average inventory}}$$

Question 1

Which of the following is NOT a component of the Fraud Triangle as depicted in Exhibit 4-1?

Accepted Answer

Collusion

Question 2

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

Accepted Answer

To protect company assets from fraud, waste, and inefficiency

Question 3

Which of the following is NOT one of the five components of an internal control system as illustrated in Exhibit 4-4?

Accepted Answer

Asset Valuation

Question 4

A company receives checks by mail. According to Exhibit 4-6, which department is responsible for preparing the deposit ticket?

Accepted Answer

Treasurer

Question 5

Which document is NOT part of the payment packet used for internal control over purchases and payments, as shown in Exhibit 4-8?

Accepted Answer

Sales Receipt

Question 6

If a company uses the imprest system for petty cash, which equation must always be true?

Accepted Answer

$$	ext{Petty Cash Fund} + 	ext{Petty Cash Vouchers Paid} = 	ext{Specified Balance}$$

Question 7

Which of the following is a limitation of internal controls?

Accepted Answer

Collusion between employees

Question 8

When preparing a bank reconciliation, which item is typically found on the bank side?

Accepted Answer

Outstanding checks

Question 9

According to GAAP, revenue is recognized when:

Accepted Answer

Goods are delivered or services are performed

Question 10

Under FOB shipping point, when does the seller recognize revenue?

Accepted Answer

When goods leave the shipping dock

Question 11

If Apple, Inc. sells 30,000 iPhones at $100 each on account, what is the correct journal entry for the sale?

Accepted Answer

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

Question 12

A company estimates that 1% of its sales will be returned. If sales revenue is $200 million, what is the estimated amount of sales returns?

Accepted Answer

$$2,000,000$$

Question 13

What does the notation '2/10, n/30' mean in sales discount terms?

Accepted Answer

2% discount if paid within 10 days; net amount due in 30 days

Question 14

Which method is best for measuring uncollectible accounts expense according to GAAP?

Accepted Answer

Allowance method

Question 15

Using the percent-of-sales method, if total revenues are $394,328 million and the estimated uncollectible rate is 0.0002, what is the uncollectible-account expense?

Accepted Answer

$$79$$ million

Question 16

Which formula correctly calculates the quick (acid-test) ratio?

Accepted Answer

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

Question 17

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

Accepted Answer

LIFO

Question 18

If a company sells 40 units using FIFO and the costs are: 10 units @ $$10, 25 units @ 14$$, 25 units @ $18, what is the cost of goods sold?

Accepted Answer

$$540$$

Question 19

According to the lower-of-cost-or-market (LCM) rule, inventory should be reported at:

Accepted Answer

Whichever is lower: historical cost or market value

Question 20

Which formula is used to calculate inventory turnover?

Accepted Answer

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

Internal Controls, Receivables, and Inventory: Exam Review Study Notes

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