Compute the corrected net income

Reference no: EM1358086

1. A liability is classified as a current liability if it is to be paid within the coming year.
True
False

2. The excess of current assets over current liabilities is called working capital.
True
False

3. Free cash flow is cash from operations less dividends.
True
False

4. Atech, Inc. sold $100 of goods to a customer who promised to pay for them in 60 days. Atech uses the accrual basis of accounting. As a result of this transaction, revenue of $100 will be recognized.
True
False

5. The inventory turnover ratio is a measure of a company's profitability.
True
False

6. In a periodic inventory system, there is a continuously-updated record of inventory on hand and inventory sold.
True
False

7. Horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year.
True
False

8. Cash equivalents include money market accounts, commercial paper, and U.S. treasury bills held for ninety days or less.
True
False

9. The concept of materiality requires a large company to record the purchase of a $10
wastepaper basket as an asset and depreciate it over its useful life.
True
False

10. The First-in, First-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.
True
False

Bold the Correct Letter

1. 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

2. The control principle related to not having the same person authorize and pay for goods is known as
a. establishment of responsibility.
b. independent internal verification.
c. separation of duties.
d. rotation of duties.

3. Listed below are four companies with their respective current ratios. Based on these current ratios, which company is in the most liquid position?
a. A, 2.0
b. B, 1.8
c. C, 2.5
d. D, 2.1

4. Internal control involves all of the following except:
a. Consistent branding
b. Protection against theft of assets
c. Enhancement of the reliability of accounting information
d. Promoting efficient and effective operations

5. The gross profit percentage is an indication of how well:
a. management is controlling expenses.
b. how much above cost a company sells its products.
c. how much cash is generated per dollar of sales.
d. efficient management is in utilizing assets.

6. In a classified balance sheet, assets are usually classified as:
a. current assets; long-term assets; property, plant, and equipment; and intangible assets.
b. current assets; long-term investments; property, plant, and equipment; and common stocks.
c. current assets; long-term investments; tangible assets; and intangible assets.
d. current assets; long-term investments; property, plant, and equipment; and intangible assets.

7. For 2007 Mossland Corporation reported net income of $28,000; net sales $400,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2007 earnings per share?
a. $4.67
b. $0.25
c. $66.67
d. $14.86

Use the following information for questions 8 & 9.

A company just starting business made the following four inventory purchases in June:
June 1 150 units $ 780
June 10 200 units 1,170
June 15 200 units 1,260
June 28 150 units 990
$4,200

A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand.

8. Using the LIFO inventory method, the value of the ending inventory on June 30 is
a. $1,040.00
b. $1,072.50
c. $1,305.00
d. $1,320.00

9. Using the FIFO inventory method, the amount allocated to ending inventory for June is
a. $1,040.00
b. $1,072.50
c. $1,305.00
d. $1,320.00

10. What Is the rationale for the internal control principle, segregation of duties?
a. History has shown that employees are generally dishonest and thus cannot be entrusted with performing related duties.
b. The work of one employee should, without duplication of effort, provide a reliable basis for evaluating the work of another employee.
c. Control is most effective when only one person is responsible for a give task.
d. Segregation of duties causes companies to hire more employees and thus it supports the economy.

Problems

Ziehart Pharmaceuticals reported net sales of $178,000 and cost of goods sold of $58,000. Candy Electronics Corp. reported net sales of $36,000 and cost of goods sold of $26,200. Calculate the gross profit percentage for both companies. From these calculations, can you determine which company is more successful? Explain. 3 Points
Condensed income statements for Will Corporation are shown below for two years.

2006 2007

Sales $75,000 $90,000
Cost of Goods Sold 45,000 54,000

Gross Profit $30,000 $36,000
Operating Expense 15,000 15,000

Net Income $15,000 $21,000

Compute the corrected net income for 2006 and 2007 assuming that the inventory as of the end of 2006 was mistakenly overstated by $3,000. 2 Points

2006 $ __________ 2007 $__________

Sam Hill has worked for Dr. Lee Chang for several years. Sam demonstrates a loyalty that is rare among employees. He hasn't taken a vacation in the last three years. One of Sam's primary duties at the medical office is to open the mail and list the checks received. He also takes cash from patients at the cashier window as patients leave. At times it is so hectic that Sam doesn't bother with giving patients a receipt for the cash paid on their accounts. He assures them he will see to it that they receive the proper credit. When the traffic is slow in the office Sam offers to help Mary post the payments to the patients' accounts receivable. She is always happy to receive his help, because he is a very conscientious worker.

Instructions
Identify at least five principles of internal control that may be violated in this medical office situation.

Reference no: EM1358086

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