Test # 2 Topics and Sample Questions
Overall Study Tips
 Definitions from book – Mostly in BLUE, but make sure that you have the definitions
from all of the material covered
 Connect
 LearnSmart
 Learning Presentations for items that you need more help understanding
 Exam Practice Questions
 Self-study questions at the end of each chapter related to the topics listed below.
 Re-do practice problems from in class (original Excel document and solutions are posted
on webcourses)
 Keep in mind how each transaction (bank rec., AR allowances, inventory costing, and
depreciation) affect the Inc. Stmt. and Balance Sheet accounts.
 How matching principle and revenue recognition principle relate to how we record
transactions in these chapters.
Chapter 4
1. Objective of internal controls
2. Framework for internal controls (Pyramid) – definitions and examples of each
a. Control environment
b. Risk assessment
c. Control activities
i. Preventative
ii. Detective
d. Monitoring
e. Information and communication
3. Bank statement reconciliation
a. Adds and subtracts from bank/book
b. Journal Entries for each type of activity that occurs during the bank statement
reconciliation
c. Error correction
Chapter 5
1. Definitions and Journal Entries - Sales discounts, allowances, & Returns (contra revenue
accounts)
2. Recording an amount for uncollectible accounts receivable
a. Two methods
i. Direct write off (not GAAP)
ii. Allowance - GAAP estimated bad debts (contra asset account)
iii. Techniques for calculating the allowance for uncollectible accounts
iv.
% of aging (only % of aging on the exam)
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3. How to write off the actual A/R amount that becomes uncollectible months after the sale.
4. Net realizable value of accounts receivable amount - how to calculate – also just called
Net A/R
5. Notes receivable – original transaction and accrue interest at year end only
Chapter 6
1.
2.
3.
4.
Components of the cost of inventory (Cost of net purchases) on the balance sheet
Cost of goods sold formula
Gross profit formula
Inventory costing methods
a. LIFO, FIFO, Weighted Average
5. Effects of each inventory valuation method on COGS, GP, & ending inventory
6. Order of current assets on balance sheet
Chapter 7
1. Measuring cost of plant assets
a. Land
b. Land Improvements
2. Lump-sum purchases of assets (Basket)
3. Definitions and calculation - Accumulated depreciation (contra asset account),
Depreciable Cost, Book value
4. Depreciation expense definition and how to record, when to use each one, and methods
used to calculate annual expense
a. Straight line
b. Activity based
c. Double declining balance - (how to calculate for first two years only)
i. accelerated – reduces net income in the early years, company pays less in
taxes, increases cash flow
5. Journal entry for recording depreciation expense
6. Intangible Assets
a. Amortization expense – definition and to record JE
i. Patents.
ii. Copyrights.
iii. Franchises.
iv. Goodwill.
7. Research and Development – expense
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Sample Questions
1. For the year of 2013 , using the % of sales techniques used for calculating estimated
uncollectible accounts, ABC Company has estimated that $10,000 of their accounts
receivable will not be collectible (10% of their sales of $100,000). The Allowance for
Uncollectible Accounts has a credit balance of $3,000. Bad debt expense for 2013
equals?
a. $5,000
b. $13,000
c. $7,000
d. $10,000
2. Using the following data, what is the ending inventory using FIFO inventory costing
method?
Sales revenue 200 units at $30 per unit
Beginning inventory 150 units at $9 per unit
Purchases 100 units at $10 per unit
a. $500
b. $450
c. $1,850
d. $1,900
3. If a bank statement included an service charge for $50, the journal entry to record this
reconciling item would include a:
a. debit to Cash for $50.
b. credit to Service charge $50.
c. credit to Cash for $50.
d. credit to Accounts Payable for $50.
4. ABC Company purchased a copyright for $90,000. The copyright has a legal life of 70
years. The copyright is expected to generate revenue for only 5 years. The annual
amortization expense for the patent is:
a. $18,000
b. $0. The copyright cost should be expenses when the copyright is purchased
c. $0. The copyright is not amortized.
d. $1,286.
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5. On January 1, 2012, ABC company acquired equipment for $100,000. The estimated life
of the equipment is 4 years or 50,000 hours. The estimated residual value is $20,000.
What is the amount of depreciation expense for 2012, if ABC Company uses the asset for
4,000 hours and uses the straight-line method?
a. $6,400
b. $20,000
c. $8,000
d. $25,000
6. The account balances in each of the following accounts at the end of the year: sales $60,000; accounts payable - $10,000; accounts receivable - $7,000; and allowance for
uncollectible accounts – debit of $400.
Lightning uses the percent-of-aging method and estimates $800 of the accounts
receivable is uncollectible. Make the adjusting entry for the uncollectible accounts. What
is the amount of the adjustment to the allowance for uncollectible accounts?
a. $1,000
b. $600
c. $800
d. $1,200
7. Under the allowance method, the entry to actually write off an $870 uncollectible account
includes:
a. a credit to Allowance for Uncollectible Accounts for $870.
b. a debit to Accounts Receivable for $870.
c. a credit to Uncollectible-Account Expense for $870.
d. a debit to Allowance for Uncollectible Accounts for $870.
8. Requiring one employee to receive cash and another employee to record the receipt of
cash is an example of which preventive control?
a. Physical controls
b. Employee management
c. Proper authorization
d. Separation of duties
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1.
2.
3.
4.
5.
6.
7.
8.
Answers
d
a
c
a
b
d
d
d
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