Accounting 131 ISU Exam 2 Questions
and Answers A+ Graded (2025)
Internal .control .- .CORRECT .ANSWER-policies .and .procedures .established .to
.provide .assurance .that .the .company's .objectives .are .being .met .(theres .3 .areas)
Three .areas .of .Internal .control .that .must .be .met .- .- .CORRECT .ANSWER-
Effectiveness .and .efficiency .of .operations, .Reliability .of .financial .reporting .and
.Compliance .with .applicable .laws .and .regulations.
Control .Environment .- .CORRECT .ANSWER-the .collection .of .environmental
.factors .that .influence .the .effectiveness .of .control .procedures.
Control .Activities .- .CORRECT .ANSWER-the .policies .and .procedures .that .top
.management .establishes .to .help .insure .that .its .objectives .are .met.
Segregation .of .Duties .- .CORRECT .ANSWER-the .idea .that .accounting .and
.administrative .duties .should .be .performed .by .different .individuals, .so .that .no
.one .person .has .access .to .the .asset .and .prepares .all .the .documents .and .record
.for .an .activity.
Bank .Reconciliation .- .CORRECT .ANSWER-the .process .of .correcting .differences
.between .a .company's .accounting .records .and .the .banks .accounting .records.
Cash .Equivalents .- .CORRECT .ANSWER-short-term, .highly .liquid .investments
.that .are .readily .convertible .to .cash .and .have .original .maturities .of .three .months
.or .less.
Bank .Statement .cash .balance .- .CORRECT .ANSWER-Add: .any .deposits .in .transit
Less: .outstanding .checks
Book .Records .cash .balance .- .CORRECT .ANSWER-Add: .Errors .in .recording
.checks
Add: .Interest
Less: .Service .Charge
Less: .NSF .Checks
, Allowance .for .Doubtful .Accounts: .- .CORRECT .ANSWER-a .contra-asset .account
.that .is .established .to ."store" .the .estimate .of .uncollectible .accounts .until
.specific .accounts .are .identified .as .uncollectible.
Aging .Method: .- .CORRECT .ANSWER-a .method .in .which .bad .debt .expense .is
.estimated .indirectly .by .determining .the .ending .balance .desired .in .the .AFDA .and
.then .computing .the .necessary .adjusting .entry .to .achieve .this .balance.
-The .amount .of .this .adjusting .entry .is .also .the .amount .of .bad .debt .expense
Percentage .of .credit .sales .method: .- .CORRECT .ANSWER-a .method .of
.determining .bad .debt .expense .whereby .the .past .experience .and .managements
.view .of .how .the .future . may .differ .from .the .past .are .used .to .estimate .the
.percentage .of .the .current .period's .credit .sales .that .will .eventually .become
.uncollectible.
FIFO .method .- .CORRECT .ANSWER-First .in .First .out. .Use .up .the .inventory
.bought .first. .recent .purchases .are .in .ending .inventory.
LIFO .method. .- .CORRECT .ANSWER-Most .recent .purchases .are .first .to .be .sold.
.(last .in .first .out)
Specific .Identification .method: .- .CORRECT .ANSWER-an .inventory .costing
.method .that .determines .the .cost .of .ending .inventory .and .the .cost .of .goods .sold
.based .on .the .identification .of .the .actual .units .sold .and .in .inventory.
Perpetual .Inventory .System .- .CORRECT .ANSWER-an .inventory .system .in .which
.balances .for .inventory .and .cost .of .goods .sold .are .continually .(perpetually)
.updated .with .each .sale .or .purchase .of .inventory.
Periodic .Inventory .System: .- .CORRECT .ANSWER-an .inventory .system .that
.records .the .cost .of .purchases .as .they .occur .(in .an .account .separate .from .the
.Inventory .account), .takes .a .physical .count .of .inventory .at .the .end .of .the .period,
.and .applies .the .cost .of .goods .sold .model .to .determine .the .balances .of .ending
.inventory .and .cost .of .goods .sold.
Cost .of .Goods .Sold .- .CORRECT .ANSWER-cost .of .goods .available .for .sale .- .cost
.of .ending .inventory
Freight .In .- .CORRECT .ANSWER-the .transportation .costs .that .are .normally .paid
.by .the .buyer . under .F.O.B. .shipping .point .terms.
Freight .Out .- .CORRECT .ANSWER-the .transportation .costs .that .the .seller .is
.usually .responsible .for .paying .under .F.O.B. .destination .shipping .terms.
Lower .of .Cost .or .Market .Rule: .- .CORRECT .ANSWER-a .rule .that .requires .a
.company .to .reduce .the .carrying . value .of .its .inventory .to .its .market .value .if .the
.market .value .is .lower .than .its .cost.
and Answers A+ Graded (2025)
Internal .control .- .CORRECT .ANSWER-policies .and .procedures .established .to
.provide .assurance .that .the .company's .objectives .are .being .met .(theres .3 .areas)
Three .areas .of .Internal .control .that .must .be .met .- .- .CORRECT .ANSWER-
Effectiveness .and .efficiency .of .operations, .Reliability .of .financial .reporting .and
.Compliance .with .applicable .laws .and .regulations.
Control .Environment .- .CORRECT .ANSWER-the .collection .of .environmental
.factors .that .influence .the .effectiveness .of .control .procedures.
Control .Activities .- .CORRECT .ANSWER-the .policies .and .procedures .that .top
.management .establishes .to .help .insure .that .its .objectives .are .met.
Segregation .of .Duties .- .CORRECT .ANSWER-the .idea .that .accounting .and
.administrative .duties .should .be .performed .by .different .individuals, .so .that .no
.one .person .has .access .to .the .asset .and .prepares .all .the .documents .and .record
.for .an .activity.
Bank .Reconciliation .- .CORRECT .ANSWER-the .process .of .correcting .differences
.between .a .company's .accounting .records .and .the .banks .accounting .records.
Cash .Equivalents .- .CORRECT .ANSWER-short-term, .highly .liquid .investments
.that .are .readily .convertible .to .cash .and .have .original .maturities .of .three .months
.or .less.
Bank .Statement .cash .balance .- .CORRECT .ANSWER-Add: .any .deposits .in .transit
Less: .outstanding .checks
Book .Records .cash .balance .- .CORRECT .ANSWER-Add: .Errors .in .recording
.checks
Add: .Interest
Less: .Service .Charge
Less: .NSF .Checks
, Allowance .for .Doubtful .Accounts: .- .CORRECT .ANSWER-a .contra-asset .account
.that .is .established .to ."store" .the .estimate .of .uncollectible .accounts .until
.specific .accounts .are .identified .as .uncollectible.
Aging .Method: .- .CORRECT .ANSWER-a .method .in .which .bad .debt .expense .is
.estimated .indirectly .by .determining .the .ending .balance .desired .in .the .AFDA .and
.then .computing .the .necessary .adjusting .entry .to .achieve .this .balance.
-The .amount .of .this .adjusting .entry .is .also .the .amount .of .bad .debt .expense
Percentage .of .credit .sales .method: .- .CORRECT .ANSWER-a .method .of
.determining .bad .debt .expense .whereby .the .past .experience .and .managements
.view .of .how .the .future . may .differ .from .the .past .are .used .to .estimate .the
.percentage .of .the .current .period's .credit .sales .that .will .eventually .become
.uncollectible.
FIFO .method .- .CORRECT .ANSWER-First .in .First .out. .Use .up .the .inventory
.bought .first. .recent .purchases .are .in .ending .inventory.
LIFO .method. .- .CORRECT .ANSWER-Most .recent .purchases .are .first .to .be .sold.
.(last .in .first .out)
Specific .Identification .method: .- .CORRECT .ANSWER-an .inventory .costing
.method .that .determines .the .cost .of .ending .inventory .and .the .cost .of .goods .sold
.based .on .the .identification .of .the .actual .units .sold .and .in .inventory.
Perpetual .Inventory .System .- .CORRECT .ANSWER-an .inventory .system .in .which
.balances .for .inventory .and .cost .of .goods .sold .are .continually .(perpetually)
.updated .with .each .sale .or .purchase .of .inventory.
Periodic .Inventory .System: .- .CORRECT .ANSWER-an .inventory .system .that
.records .the .cost .of .purchases .as .they .occur .(in .an .account .separate .from .the
.Inventory .account), .takes .a .physical .count .of .inventory .at .the .end .of .the .period,
.and .applies .the .cost .of .goods .sold .model .to .determine .the .balances .of .ending
.inventory .and .cost .of .goods .sold.
Cost .of .Goods .Sold .- .CORRECT .ANSWER-cost .of .goods .available .for .sale .- .cost
.of .ending .inventory
Freight .In .- .CORRECT .ANSWER-the .transportation .costs .that .are .normally .paid
.by .the .buyer . under .F.O.B. .shipping .point .terms.
Freight .Out .- .CORRECT .ANSWER-the .transportation .costs .that .the .seller .is
.usually .responsible .for .paying .under .F.O.B. .destination .shipping .terms.
Lower .of .Cost .or .Market .Rule: .- .CORRECT .ANSWER-a .rule .that .requires .a
.company .to .reduce .the .carrying . value .of .its .inventory .to .its .market .value .if .the
.market .value .is .lower .than .its .cost.
