Accounting accrual concept and revenue recognition - Multiple Choice.
Use the following information to answer questions 1 and 2. Sheepskin Company had the following transactions during 2006.
a. Sales of $4,500 on account
b. Collected $2,000 for services to be performed in 2007
c. Paid $625 cash in salaries
d. Purchased airline tickets for $250 in December for a trip to take place in 2007
1. What is Sheepskin's 2006 net income using cash basis accounting?
a. $5,87
b. $1,375
c. $5,625
d. $1,125
2. Adjusting entries are
a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.
3. Prepaid expenses are
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.
4. Which of the following would not result in unearned revenue?
a. Rent collected in advance from tenants
b. Services performed on account
c. Sale of season tickets to football games
d. Sale of two-year magazine subscriptions
5. Which one of the following is not an objective of a system of internal controls?
a. Safeguard company assets
b. Overstate liabilities in order to be conservative
c. Enhance the accuracy and reliability of accounting records
d. Reduce the risks of errors
6. All of the following are examples of internal control procedures except
a. using prenumbered documents.
b. reconciling the bank statement.
c. customer satisfaction surveys.
d. insistence that employees take vacations.
7. Which of the following is not a limitation of internal control?
a. Cost of establishing control procedures should not exceed their benefit
b. The human element
c. Collusion
d. The size of the company
8. Companies that fail to maintain an adequate system of internal control
a. may be subject to charges of fraud.
b. will be automatically dissolved.
c. may be subject to fines and officer imprisonment.
d. may be forced to sell their assets.
9. Two individuals at a retail store work the same cash register. You evaluate this situation as
a. a violation of establishment of responsibility.
b. a violation of separation of duties.
c. supporting the establishment of responsibility.
d. supporting internal independent verification.
10. In a small business, the lack of certain separations of duties can best be overcome by
a. bonding the employees.
b. getting the owner actively involved.
c. hiring only honest employees.
d. holding one person responsible for a given set of transactions.