Chapter 6: Internal Control and Financial Reporting for Cash and Merchandising Operations
October 8, 2008
1. Company Y sells notebooks, pencils, pens, and books. What type of business is Company Y?
a. Service
b. Manufacturer
c. Merchandiser
d. None of the above.
2. After receiving your bank statement, you notice a bank service charge. Which of the following actions need to be taken to reconcile your cash account?
a. Increase the book balance; no change to the bank’s balance.
b. Decrease the book balance; decrease the bank’s balance.
c. Decrease the book balance; no change to the bank’s balance.
d. No change to either account.
3. Purchase discounts with terms 2/10, n/30 mean:
a. 10% discount for payment within 30 days.
b. 2% discount for payment within 10 days or the full amount (less returns) is due within 30 days.
c. two-tenths of a percent discount for payment in 30 days.
d. None of the above.
4. A $1,000 sale is made on May 1 with the terms 2/10, n/30. What amount if received on May 9 will be considered paid in full?
a. $700
b. $880
c. $800
d. $980
5. Company ABC updates the inventory account with every inventory purchase or sale. What type of inventory system is ABC on?
Perpetual Inventory System
6. What are the six internal control principles?
See Notes Chapter 6 (Listed in full)
7. Bank Statement: September 1- September 30
Checks Deposits OtherBalance
Balance Sept 1.$2,000
September 7NSF $100$1,900
September 11$3,000$4,900
September 12#1 $800$4,100
September 17#2 $1,700$2,400
September 26#3 $2,300$100
September 29EFT $150$250
September 30Svc Ch. 20$230
There were NO outstanding checks or deposits in transit at the end of August. However, there are outstanding checks and deposits in transit at the end of September.
Books: Below are the recorded cash activities recorded to the companies books.
Beginning Balance Septemeber 1: $2,000
Deposits:Checks:
Sept. 10: $3,000Sept. 10: #1$800
Sept. 30: $2,500Sept. 15: #2$1,700
Sept. 22: #3$2,300
Sept. 28: #4$50
Ending Balance September 30: $2,650
**Reconcile the cash account to determine the amount to show on the balance sheet***
Balance per Bank Statement$230
+ Deposits in Transit + 2,500
-Outstanding Checks ( 50)
$2,680
Balance per Book $2,650
+ EFT + 150
-Service Charges ( 20)
-NSF Check ( 100)
$2,680
8. Using a perpetual inventory system, record the Journal Entries for the following transactions.
Jan. 6: Purchased inventory for $1,200 from InventoryPlus. Terms are 2/10, n/30.
8: Purchased inventory for $5,000 from ABC Inventory. Terms are 2/10, n/30.
12 : Sold goods (inventory) for $2,000, which cost the company $1,500. (two Journal Entries)
16 : Paid ABC Inventory for purchases made on Jan. 8.
25: Paid InventoryPlus in full.
Jan. 6Inventory1,200
A/P1,200
Jan. 8Inventory5,000
A/P5,000
Jan. 12Cash2,000
Sales Revenue2,000
COGS1,500
Inventory1,500
Jan. 16A/P5,000
Cash 4,900
Purchase Disc 100
Jan. 25A/P1,200
Cash1,200
9. Record the Journal entries for the following transactions. We are the buyer.
Feb. 1: Bought $3,000 of inventory on account. Terms are 2/10, n/30.
3: Returned $200 of inventory purchased.
7: Paid for inventory purchased on Feb. 1
Feb. 1Inventory3,000
A/P3,000
Feb. 3A/P200
Purchase Returns 200
Feb. 7A/P2,800
Cash2,744
Purchase Disc 56
10. Record the journal entries for the following transactions. We are the supplier.
March 1: Sold $1,000 of inventory to Company XYZ. Terms are 2/10, n/30. (at cost= $500)
3: Company XYZ returned $200 worth of inventory. (at cost=$150)
8: Company XYZ pays in full.
March 1A/R1,000
Sales Revenue1,000
COGS 500
Inventory500
March 3Sales Returns & Allowances200
A/R200
Inventory150
COGS150
March 8Cash784
Sales Disc 16
A/R 800