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Exam 5: The Operating Cycle and Merchandising Operations

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Question 71

True/False

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Proper control procedures can guarantee the prevention of theft.

A) True
B) False

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Question 72

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The bonding of employees is an example of which feature of a good system of internal control?

A) Authorization of transactions
B) Limited access to assets
C) Sound personnel policies
D) Separation of duties

E) All of the above
F) A) and C)

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Question 73

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For each description below,state which document is being described. a. Document issued to permit the treasurer to make a payment b. Bill sent by the vendor to the purchaser c. Written request prepared by a department asking the purchasing department to make a purchase d. Document accompanying money put in the bank e. Document describing items in a shipment of goods delivered f. Document sent to a vendor requesting shipment of goods

Use this information to answer the following question. $\begin{array}{|l|r|r|}\hline \text { Account Name } & \text { Debit } & \text { Credit } \\\hline \text { Sales } & & 300,000 \\\text { Sales Returns and Allowances } & 10,000 & \\\text { Purchases } & 68,000 & \\\text { Purchases Returns and Allowances } & & 8,000 \\\text { Freight-In } & 12,000 & \\\text { Selling Expenses } & 30,000 & \\\text { General and Administrative Expenses } & 110,000 & \\\hline\end{array}$ In addition,beginning merchandise inventory was $22,000 and ending merchandise inventory was $14,000. If beginning and ending merchandise inventories were ignored in computing net income,then net income would be

Use this information to answer the following question. $\begin{array}{|l|r|r|}\hline \text { Account Name } & \text { Debit } & \text { Credit } \\\hline \text { Sales } & & 300,000 \\\text { Sales Returns and Allowances } & 10,000 & \\\text { Purchases } & 62,000 & \\\text { Purchases Returns and Allowances } & & 8,000 \\\text { Freight-In } & 12,000 & \\\text { Selling Expenses } & 30,000 & \\\text { General and Administrative Expenses } & 110,000 & \\\hline\end{array}$ In addition,beginning merchandise inventory was $22,000 and ending merchandise inventory was $14,000. Cost of goods sold for the period was

Service businesses can be classified as wholesalers and retailers.

The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.

Which of the following is necessary for computing cost of goods sold but not necessary for computing goods available for sale?

Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.

Which of the following attributes of internal control would be violated if the accounting clerk wrote checks to pay accounts payable?

Using the following information,calculate for 2010 (a)net sales,(b)cost of goods sold,(c)gross margin,and (d)net income. $\begin{array}{lr}\text { Freight-In } & \$ 11,400 \\\text { Merchandise Inventory, December 31, } 2009 & 130,000 \\\text { Sales } & 320,000\\\text { Purchases Returns and Allowances } & 1,600 \\\text { Advertising Expense } & 18,000 \\\text { Purchases } & 140,000 \\\text { Merchandise Inventory, December 31, } 2010 & 110,000 \\\text { Sales Returns and Allowances } & 11,000 \\\text { General and Administrative Expenses } & 114,000\end{array}$

Chancellor Company purchased merchandize worth $900 on credit,terms n/30.What is the required journal entry to record the transaction under the perpetual inventory system?

Which of the following should not be included in the count of ending merchandise inventory?

The collection of a $1,000 account beyond the 2 percent discount period would result in a(n)

Indicate whether each business practice listed below strengthens (S)or weakens (W)a company's system of internal control. _____ a. Discouraging employees from taking paid vacations _____ b. Using banking facilities as much as possible _____ c. Having employees bonded _____ d. Conducting surprise audits of cash on hand _____ e. Having one person open the mail _____ _____ f. Having the receiving department compare goods received with goods ordered

The entry to record a purchase of $6,000 in merchandise assuming terms of 2/10,n/30 and a periodic inventory system would include a(n)

Computerization has led to a large increase in the use of the perpetual inventory system.

Compute the dollar amount of each item indicated by a letter in the following table.Treat each horizontal row of numbers as a separate problem.

A company would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.

Under an effective system of internal control,errors occur only as a result of fraud or dishonesty.