SI Review Ch. 5-9

SI Review: Chapters 5-9
1. Who are the internal users of the financial statements? External users?
Internal: Managers, Board of Directors
External: Creditors, Investors, Government
2. What three things are needed in order for someone to commit fraud?
Incentive, Opportunity, Character
3. How did the SOX Act impact financial accounting?
It called for more internal controls and greater penalties if caught.
4. Explain the difference between a 10K, 8K, and a 10Q.
10K: Annual Report
8K: Special events
10Q: Quarterly reports
5. What does IFRS stand for? What is it?
IFRS: International Financial Reporting Standards
Accounting rules that all other countries other than the US follow for
financial reporting.
6. Explain the difference between comparability and consistency. Relevance vs.
Comparability: compare two different companies in the same time period
Consistency: use the same company accounting procedures year after year
Relevance: Information is timely and it has predictive value
Reliability: Information is verifiable and unbiased
7. Give an example for the following types of businesses: service, merchandising, &
Service: Geek Squad
Merchandising: Best Buy
Manufacturing: Dell
8. State examples of how companies manage internal controls.
Segregation of duties, establish responsibilities, restrict access, document
9. True or False: Cash equivalents are highly liquid investments with one year or less to
10. Calculate COGS if Beginning Inventory is $2394, Ending Inventory is $1087, and
Purchases are $4570.
COGS= $5877
11. Explain what happened when a physical count of inventory was $3234 but the Ending
Inventory on the books was $3236.
Theft, spoilage, breaks- shrinkage
12. Give the journal entries for the following items.
 Sold cooking merchandise on account on March 1 to Aunt B’s Bakery for
$175 with terms 2/10, n/30.
Accounts Receivable 175
Sales Revenue
Sold baking merchandise on account on March 7 to Page’s Bakery for $210
with terms 3/15, n/45.
Accounts Receivable 210
Sales Revenue
 Page’s Bakery paid the full amount owed on March 19.
Sales Discount 6.30
Accounts Receivable
 Aunt B’s Bakery returned $20 of items back on March 20.
Sales Returns/Allowance
Accounts Receivable
 Aunt B’s Bakery paid the full amount owed on March 25.
Accounts Receivable 155
13. What is the difference between FOB Shipping and FOB Destination?
FOB Shipping: Buyer pays for the transportation costs- Buyer retains
ownership when the item leaves the factory
FOB Destination: Seller pays for the transportation costs- Buyer retains
ownership when the item gets to the destination
14. What is the primary objective of financial reporting?
Provide useful information for investing and credit decisions, in assessing
future cash flows, and about enterprise resources, claims to resources, and
changes in them.
15. Find COGS using LIFO
Jan 1.
Jan. 30
March 14
May 1
Beg. Inventory
4 units
5 units bought
7 units sold
10 units
COGS = $4000
16. True or False: Auditors read all the financial material and make sure the accounting
report is followed by US GAAP?