Question

1. Which of the following is NOT a reason for separating key duties such as custody, authorization, and recordkeeping?

A. Reducing labor costs

B. Accuracy of processing

C. Limiting the opportunity for fraud

D. Compliance with regulations that require good internal controls

2. On November 4, Burton sold furniture to a customer for $9,000 with credit terms 2/10, n/60. Burton uses the gross method of accounting for sales discounts. If the full payment was received on November 9th, Burton would record a journal entry which includes:

A. a credit to Cash for $8,100.

B. a debit to Cash for $9,000.

C. a debit to Sales discounts for $900.

D. a debit to Sales discounts for $180.

3. Haven Corp’s management estimates that 1% of sales will be uncollectible. For the year, Sales are $2,000,000. At the end of the period, Accounts receivable shows a $70,000 debit balance, while the unadjusted balance in Allowance for uncollectible accounts is a 3,000 debit. After adjustment, what will Haven report for the net book value of Accounts receivable?

A. 53,000

B. 47,000

C. 50,000

D. 87,000

4. An analysis of Rockstone’s year-end Accounts receivable indicates that $6,000 are estimated to be uncollectible. Prior to adjustment, the Allowance for uncollectible accounts had an $800 credit balance. How much will Rockstone record for Bad debt expense for the period?

A. 6,000

B. 6,800

C. 5,200

D. None of the above

5. Amico Corp. uses the periodic method. The company has the following information for 2021:

Sales $100,000
Beginning inventory $12,000
Ending inventory $16,500
Purchases $70,000
Freight-in    $2,200
Gross profit $35,000

The only other inventory related account is Purchases discounts. What value would Amico show for Purchases discounts?

A. 3,500

B. 3,600

C. 2,700

D. 4,100

6. Lawrence uses a periodic inventory system. Inventory details for January 2021 are as follows:

  Units   Per unit price   Total
Beginning inventory    200 $5.00 $1,000
January 15th purchase 100 5.30 $530
January 29th purchase 100 5.50 $550

At the end of the month, an Inventory count revealed that 120 units were on hand. If Lawrence uses the average cost method, what is the value of ending inventory?

A. 624

B. 632

C. 640

D. 648

7. Bond Company adopted the Dollar-Value LIFO inventory method on January 1, 2021. The following data were available for Bond’s inventory for the three years following the adoption.

  Ending Inventory
At Current Year
Year Costs Cost Index
1/01/2021 $550,000 1.00
12/31/2021 $642,000 1.07
12/31/2022 $725,000 1.25
12/31/2023    $812,500 1.30

Under the Dollar-Value LIFO method, what would be reported for inventory at 12/31/2023?

A. 582,100

B. 625,000

C. 640,600

D. 812,500

8. Data related to Kelvin Medical Supply’s inventory of surgery equipment is presented below:

Selling price $190
Cost $170
Replacement cost $155
Disposal cost $30
Normal gross profit rate 10%

If Kelvin uses FIFO, the surgery equipment inventory would be reported at what value on the year-end balance sheet?

A. 160

B. 155

C. 170

D. 141

9. California, Inc., through no fault of its own, lost an entire warehouse due to an earthquake on May 1, 2021.

In preparing its insurance claim on the inventory loss, the company prepared the following data:

Inventory January 1, 2021: $300,000
Sales from January 1 to May 1: $1,400,000
Purchases from January 1 to May 1: $875,000
California consistently reports a 30% gross profit.

Using the gross profit method, what amount of inventory would California estimate to have lost on May 1, 2021?

A. 195,000

B. 225,000

C. 755,000

D. 310,000

10. Shelby Corp. hired the CEO’s daughter, Karen Statement (also known as Miss Statement) to do inventory counts. Unfortunately she always messes things up!

Miss Statement miscounted inventory by the following amounts:

12/31/2020 inventory count – $7,725 understatement

12/31/2021 inventory count – $4,010 understatement

12/31/2022 inventory count – $6,475 overstatement

Shelby Corp. used her counts in preparation of the yearly financial statements. Assuming no other errors were made, what effect do these errors have on 2022 net income?

A. $2,465 overstated

B. $10,485 overstated

C. $6,475 overstated

D. $6,475 understated

Answer 1

Question 1:-

The correct answer is Option A - Reducing Labor costs is not a reason for separating key duties such as custody, authorization and record keeping.

Option B is incorrect. Segregating the duties of custody , authorisation and record keeping would impact the accuracy with which transactions are processed since there are multiple steps involved, as is a valid reason for separating such processes.

Option C is incorrect. Segregating of duties will result in enhanced transparency since there are multiple persons involved in performance of every step and will thus limit the scope for fraud. Hence this option is incorrect.

Option D is incorrect. An effective internal control ensures segregation of duties in such a way it prevents the instances of fraud and error to occur. As such, this is vaid reason and hence is incorrect.

Kindly post the remaining questions separately so that we can answer them as well. All the best and please let me know if you have any questions via comments :) .