11. If ending inventory is overstated, net income and assets will be Net Income
ID: 2435961 • Letter: 1
Question
11. If ending inventory is overstated, net income and assets will beNet Income Assets
a. Understated Understated
b. Overstated Understated
c. Understated Overstated
d. Overstated Overstated
____ 12. One of the two constraints in accounting is
a. comparability.
b. relevance.
c. reliability.
d. materiality.
____ 13. The assumption that a company will continue in operation long enough to carry out its existing objectives is the
a. economic entity assumption.
b. time period assumption.
c. monetary unit assumption.
d. going concern assumption.
____ 14. All of the following are intangible assets except
a. patents.
b. franchises.
c. goodwill.
d. land improvements.
____ 15. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
a. Independent internal verification
b. Segregation of duties
c. Establishment of responsibility
d. Physical security.
____ 16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a
a. debit to an expense account.
b. debit to the Allowance account.
c. credit to the Allowance account.
d. credit to an expense account.
____ 17. Shipping terms of FOB destination mean that the
a. purchaser is responsible for the shipping charges.
b. shipping charges are debited to Freight-Out.
c. items should be in the purchaser's inventory account at year-end if the items are in transit.
d. both (a) and (c) above.
____ 18. Felix Company has a $140,000 balance in Accounts Receivable and a $1,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $900,000. What is the amount of the bad debt adjusting entry if Felix uses a percentage of receivables basis (at 10%)?
a. $16,000
b. $14,000
c. $15,000
d. $15,200
____ 19. The constraint of conservatism is best expressed as
a. when in doubt, choose the method that will least likely overstate assets and net income.
b. only material items should be recorded and reported.
c. the cost of applying an accounting principle should not exceed its benefit.
d. the lower of cost or market method should be used for inventories.
____ 20. If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a
a. credit to Accounts Receivable for $40.
b. credit to Cash for $1,960.
c. debit to Sales Discounts for $40.
d. none of the above.
Explanation / Answer
11. If the closing inventory is overstated, the Net Profit will be overstated. As closing inventory appears in the Balance Sheet it would be overstated under the Current asset heading.
12. Materiality concept is a constraint in accounting.
13. The going concern concept if studied in detail, will give you an idea that business is concedered or expected to continue to the foreseable future, the business will have no intention of closing down the business and therefore there would be no manipulation when preparing the financial accounts. There is no time limit for business life.
14. Patents, Franchises, Goodwill, brand recognition are all concedered to be intangible assets as they are not physical in nature, however land improvements is physical in nature and therefore is not an intangible asset.
15. Daily cash count of register receipts made by a cashier department supervisor demonstrates the application of physical security, to be sure that no receipts are found missing. In case of theft the staff should be investigated.
16.To write-off an uncollectable debt would be debited to the expense account.
17. FOB stands for Free On Board, this states that the responsiblity of the goods being delievered is up to the seller until the shipment package goes to a transit stage, for instance Mr.A sold a trainer to Mr.B, Mr.A is responsible for initial shipment charges and many others untill it has been loaded on the ship, after that all the costs occuring like insurance are to be delt by Mr.A.
18.10/100 x 140,000 + 1,000 = 15,000.
19.Convertism is an accounting concept which ensures a high degree of verification before making any legal claims to any profit made. It will recognize all probable losses are they are discovered and most expenditures as they are incurred. Revenue will be deferred until it is verified, constraints like the recognization costs could exceed the benefits at times.
20. Debit Bank/Cash with 1960
Debit Discount Allowed with 40
Sales is credited with 2000.
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