Exam 3

Question 1

warranties

Answer 1

when companies guarantee their products or services

Question 2

current (short term asset)

Answer 2

expected to be converted to cash or consumed within 1 year

Question 3

current ratio?

Answer 3

current assets/current liabilities

Question 4

current (short term liability)

Answer 4

those within 1 year or an operating cycle

Question 5

solvency

Answer 5

ability to repay liabilities in the long run

Question 6

Liquidity

Answer 6

this looks at the short term (within year)

Question 7

solvency

Answer 7

focuses on long term (greater than year)

Question 8

List of current assets:

Answer 8

cash
Marketable securities
AR
short tern NR
interest receivable
investing
supplies
pre-paid items

Question 9

List of current liabilities:

Answer 9

AP
short term NP
wages payable
taxes payable
interest payable

Question 10

internal control

Answer 10

policies and procedures used to provide reasonable assurance that the objectives of an entreprise will be accomplished

Question 11

accounting controls

Answer 11

(safe assets) designed to safeguard company assets and ensure reliable accounting records

Question 12

administrative controls

Answer 12

concerned with evaluating performance and assessing the degree of compliance with the company and policies and public laws

Question 13

bank recognition

Answer 13

companies prepare this to explain differences between the cash balance reported on the bank statement and cash balance recorded in depositors accounting records

Question 14

segregation of duties

Answer 14

Frequently used as a deterrent to corruption. the likely hood of fraud or theft is reduced if employees must work together to accomplish it

Question 15

quality of employees

Answer 15

cheap labor is not a bargain if employees are incompetent. employees should be trained properly

Question 16

bonded employees

Answer 16

the best way to ensure employee honesty to hire individuals with high levels of personal integrity. uses a fidelity bond which provides insurance that protects a company from losses caused by employee dishonesty

Question 17

required absences

Answer 17

employees should be allowed to take vacations

Question 18

procedures manual

Answer 18

appropriate accounting procedures should be documented here. Periodic reviews should be conducted to ensure that employees are following the procedures outlines in the manual

Question 19

authority and responsibility

Answer 19

employees are motivated by clear lines of authority and responsibility. they work harder when they have authority to use their own judgement, and they exercise reasonable caution when they are held responsible for their actions

Question 20

pre-numbered documents

Answer 20

keep a record of your documents. businesses also pre-number checks to avoid unauthorized use of their bank accounts

Question 21

physical control

Answer 21

employees can walk away with billions of dollars of business assets each other

Question 22

performance evaluations

Answer 22

a physical count of inventory

Question 23

notes receivable

Answer 23

notes specify’s the maturity date, interest rate and other credit items

Question 24

account receivable

Answer 24

company’s right to collect cash in the future

Question 25

where is accounts and notes receivable located on a balance sheet?

Answer 25

under assets

Question 26

net realizable value

Answer 26

represents amount of receivables a company estimates it will actually collect

Question 27

allowance for doubtful accounts (ADA)

Answer 27

a company's estimate of the amount of uncollectible receivables

Question 28

maker

Answer 28

borrower or debtor

Question 29

payee

Answer 29

person whom note is made payable

Question 30

Principal

Answer 30

amount of money loaned by payee to borrower

Question 31

interest

Answer 31

economic benefit earned by payee for loaning the principal to the maker

Question 32

maturity date

Answer 32

date maker must repay principal and any unpaid interest

Question 33

collateral

Answer 33

assets belonging to maker assigned as security for the not in the event of the makers default on the note

Question 34

promissory note

Answer 34

legal document that sets forth credit terms such as, interest rate and maturity date

Question 35

How do you find net income?

Answer 35

sales revenue --------------- gross margin ---------------- operating income + or - other expenses ------------------ pre-tax income ------------------ Net Income (NI)

Question 36

How do you find NRV?

Answer 36

A/R ------------ NRV

Question 37

FIFO (first in, first out)

Answer 37

first items purchased, first items sold

Question 38

LIFO (last in, first out)

Answer 38

last items purchased are first ones sold

Question 39

weighted average (WA)

Answer 39

average cost per unit

Question 40

flow of costs

Answer 40

determines cost of inventory items that are sold when preparing a financial statement

Question 41

physical flow of goods

Answer 41

actual timing when goods are sold

Question 42

weighted average equation

Answer 42

total cost -------------- total units