Accounting II Exam Preparation Guide
Course Introduction
Accounting II builds upon the fundamental concepts introduced in Accounting I, delving deeper into topics such as partnerships, corporations, long-term liabilities, investments, and the analysis of financial statements. The course emphasizes the development and interpretation of financial information for decision-making purposes, covering advanced accounting techniques, internal controls, and the preparation and analysis of cash flow statements. Students will also explore ethical issues in accounting and gain hands-on experience with accounting software, providing a comprehensive understanding of how accounting principles apply to real-world business operations.
Recommended Textbook
Horngrens Financial and Managerial Accounting 6th Edition by Tracie L. Nobles
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Chapter 1: Accounting and the Business Environment
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Questions
Q1) Springer Corporation had the following transactions in August:
Earned $2,000 of revenues on account;collected $4,000 from a customer for services provided last month;incurred $600 of repair expense and paid cash;paid $200 for rent that it owed from the previous month. What is the net income in August?
A)$600
B)$4,000
C)$5,400
D)$1,400
Answer: D
Q2) John contributed $6,000 to the business by opening a bank account in the name of the business,United Marketing.The corporation issued common stock to John.This transaction results in an increase in the assets of the business.
A)True
B)False
Answer: True
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3
Chapter 2: Recording Business Transactions
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Q1) Which of the following sequences states the order in which accounts are listed on a trial balance?
A)Equity Assets Liabilities
B)Liabilities Assets Equity
C)Assets Equity Liabilities
D)Assets Liabilities Equity
Answer: D
Q2) After posting the journal entries from the journal to the ledger,the accounting equation should be in balance.
A)True
B)False
Answer: True
Q3) A business purchases equipment for $8,000 cash.Which of the following accounts is debited?
A)Cash
B)Accounts Payable
C)Common Stock
D)Equipment
Answer: D
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Chapter 3: The Adjusting Process
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Q1) Armstrong Services has a weekly payroll of $50,000.December 31 falls on Thursday and Armstrong will pay its employees the following Monday (January 4)for the previous full week.Assume that the company has a five-day workweek and has an unadjusted balance in Salaries Expense of $845,000 at December 31.Prepare the January 4 journal entry.Reversing entries are not made.
Answer: 11ea86ed_2cec_3540_8b27_bba67f0fd9e7_TB3056_00
Q2) The revenue recognition principle guides accountants in ________.
A)ensuring only revenues received in cash are recorded
B)determining when to record expenses
C)determining when to record revenues
D)ensuring expenses are deducted from revenues
Answer: C
Q3) Financial statements can be prepared from the unadjusted trial balance.
A)True
B)False
Answer: False
Q4) Under accrual basis accounting,an expense is recorded only when cash is paid.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Completing the Accounting Cycle
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Q1) Intangible assets are long-term assets that have no physical form and convey special rights.
A)True
B)False
Q2) Liquidity is a measure of how ________.
A)quickly an asset may be converted into cash
B)long an asset can be used
C)easily an asset can be exchanged for another asset
D)quickly an asset appreciates in value
Q3) Which of the following accounts will be included in a post-closing trial balance?
A)Service Revenue
B)Rent Expense
C)Interest Expense
D)Unearned Revenue
Q4) Salaries Payable,Accounts Payable,and Unearned Revenue are examples of ________.
A)short-term investments
B)fixed assets
C)current liabilities
D)long-term liabilities
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Chapter 5: Merchandising Operations
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Q1) What does the gross profit percentage measure? How is it computed?
Q2) The purchase discount amount is calculated on the amount of the invoice minus the returns and allowances.
A)True
B)False
Q3) Revenue from contracts with multiple performance obligations is recognized as each performance obligation is satisfied.
A)True
B)False
Q4) Which of the following is NOT recorded in a modern perpetual inventory system?
A)units purchased and cost amounts
B)units sold and sales and cost amounts
C)timeliness of vendor deliveries
D)the quantity of merchandise inventory on hand and its cost
Q5) ABC Electrical Supply Company purchased $560,000 of inventory.Goods of $35,000 were returned.ABC received an early discount of $55,000 and paid freight in of $15,000 and freight out of $20,000.Compute the net cost of inventory purchased.Label your work and show all computations.
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Chapter 6: Merchandise Inventory
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Q1) Costas,Inc.purchased inventory on account for $6,500.Prepare the journal entry to record the purchase of inventory on account.(Assume a perpetual inventory system. )Omit explanation.
Q2) List and briefly discuss three measures that can be taken to maintain good controls over merchandise inventory.
Q3) A company changes its inventory costing method each period in order to maximize net income.This is a violation of the consistency principle.
A)True
B)False
Q4) For all four inventory costing methods,cost of goods sold is always equal to the sum of beginning inventory plus net purchases.
A)True
B)False
Q5) Which of the following is NOT included in a perpetual inventory record?
A)identification of the inventory item
B)cost per unit
C)unit selling price
D)quantity on hand
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Chapter 7: Internal Control and Cash
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Q1) The petty cash fund has a current balance of $350,which is the established fund balance.Based on activity in the fund,it is determined that the balance needs to be changed to $400.Which journal entry is needed to make this change?
A)Debit the Petty Cash account and credit the Cash account for $400.
B)No journal entry is needed because this change only involves cash.
C)Debit the Petty Cash account and credit the Cash account for $50.
D)Debit the Cash account and credit the Petty Cash account for $50.
Q2) Before any internal control procedure is initiated,which of the following questions must be primarily addressed by a company?
A)Will this put an end to theft?
B)Is this the best security money can buy?
C)How much benefit will be derived from the cost of the procedure?
D)Will this prevent accounting errors?
Q3) Discuss the roles of the internal auditors and the external auditors.
Q4) The Sarbanes-Oxley Act requires all private companies in the United States to maintain an internal control system.
A)True
B)False
Q5) List the four steps,the proper order,of the purchasing and payment process.
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Chapter 8: Receivables
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Q1) Factoring is an option available to a business to reduce the risk of uncollectible accounts receivable.
A)True
B)False
Q2) Moonlight,Inc.wrote off the account of one of its customers,X,in 2018 for $500.On January 21,2019,X unexpectedly repaid his account in full.The company uses the direct write-off method to account for uncollectible receivables.Journalize the entries required for Moonlight,Inc.on January 21,2019.Omit explanations.
Q3) Which of the following statements regarding receivables is correct?
A)Each receivable transaction involves three parties.
B)Receivables occur when a business loans money to another party.
C)A receivable occurs when a business makes a cash sale of goods or services to another party.
D)A receivable is the right to pay cash in the future from a current receivable transaction.
Q4) The expense associated with the cost of uncollectible accounts receivable is called bad debts expense.
A)True B)False
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Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) Which of the following costs related to a business car would be capitalized?
A)the cost to install an engine with higher horsepower
B)the cost to change the oil
C)the cost to replace a broken windshield
D)the cost of new tires
Q2) Equipment was acquired for $208,000 and has accumulated depreciation of $85,000.The business exchanges this equipment for new equipment.The new equipment has a market value of $307,000 and the business pays $56,000 cash.Assume the exchange has commercial substance.The exchange results in a ________.
A)loss of $128,000
B)gain of $184,000
C)gain of $128,000
D)loss of $184,000
Q3) If an asset is disposed of during the year,there is no need to calculate depreciation from the beginning of the year of disposal to the date of disposal.
A)True
B)False
Q4) Prepare the journal entry to record the acquisition of fences and signs for $5,000 cash.Omit explanation.
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Chapter 10: Investments
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Q1) A 9% rate of return on total assets means that the company earned $0.09 for each $1.00 invested in the company's average long-term assets.
A)True
B)False
Q2) A preferred stock is an example of a debt security.
A)True
B)False
Q3) National Financial Services,Inc.invested $21,000 to acquire 6250 shares of Stonebridge Investments,Inc.on March 15,2015.This investment represents less than 20% of the investee's voting stock.On May 7,2018,National Financial Services,Inc.sells 3000 shares for $19,250.When the journal entry to record the sale is made,________.
A)Gain on Disposal will be credited
B)Equity Investments will be debited
C)Cash will be credited
D)Loss on Disposal will be debited
Q4) All available-for-sale debt investments are reported as long-term assets on the balance sheet.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Only contingencies that are probable and can be estimated are recorded as a liability and an accrued expense.
A)True
B)False
Q2) Because amounts owed for products or services on account are typically due in 60 days,they are current liabilities.
A)True
B)False
Q3) Which of the following is an important internal control over payroll?
A)separating the duties of the disbursement of paychecks from the recording of payroll transactions in the ledger
B)separating the duties of safeguarding property from record-keeping of property
C)separating the duties of approving invoices from signing disbursement checks
D)separating the duties of cash disbursement from bank reconciliations
Q4) Southwest,Inc.records indicate that January sales on account were $109,000.The company's management estimates warranty expense to be 3.6% of sales.Prepare the journal entry to record warranty expense.Omit explanation.
Q5) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Long-Term Liabilities
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Q1) An alternative to calling the bonds is to purchase any available bonds in the open market at their current market price.
A)True
B)False
Q2) Federal Unemployment Taxes Payable is typically shown on the balance sheet under the long-term liabilities section.
A)True
B)False
Q3) A bond is issued at a discount when a bond's stated interest rate is ________.
A)equal to the market interest rate
B)more than the effective interest rate
C)less than the market interest rate
D)more than the market interest rate
Q4) If bonds with a face value of $205,000 are issued at 110,the amount of cash proceeds is ________.
A)$225,390
B)$205,000
C)$186,364
D)$225,500
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Chapter 13: Stockholders Equity
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Q1) Depending on its size,a stock dividend may cause the company's market price to rise because of the increased supply of stock.
A)True
B)False
Q2) The retained earnings of a corporation is ________.
A)internally generated equity that is earned by profitable operations that is not distributed to stockholders
B)externally generated equity that is contributed by shareholders
C)externally generated equity that is acquired from banks and other creditors
D)internally generated equity that is received from employee stock purchases
Q3) Treasury stock is ________.
A)a contra equity account
B)a contra asset account
C)a liability account
D)an asset account
Q4) Stock dividends are distributed to stockholders in proportion to the number of shares that stockholders already own.
A)True
B)False
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Chapter 14: The Statement of Cash Flows
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Q1) Which of the following sections from the statement of cash flows includes borrowing cash and paying off loans?
A)the investing activities section
B)the operating activities section
C)the financing activities section
D)the non-cash investing and financing section
Q2) Regarding the use of a spreadsheet for the preparation of the statement of cash flows,which of the following statements is incorrect?
A)The spreadsheet starts with the beginning balance sheet and concludes with the ending balance sheet.
B)When companies face complex situations,a spreadsheet can help in preparing the statement of cash flows.
C)The spreadsheet cannot be used for the direct method.
D)Accountants can prepare the statement of cash flows directly from the lower part of the spreadsheet.
Q3) List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.
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Chapter 15: Financial Statement Analysis
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Q1) A trend analysis would be used if an analyst wants to see how the gross profit of a company has changed from one year to the next.
A)True
B)False
Q2) Horizontal analysis compares each item in the income statement to the net sales amount.
A)True B)False
Q3) The profit margin ratio ________.
A)focuses on the liquidity of the business
B)is computed by dividing net sales by net income
C)shows how much gross profit a business earns on every $1.00 of sales
D)is often compared to the industry average
Q4) The cash ratio helps to determine a company's ability to meet its short-term obligations using cash and cash equivalents.
A)True B)False
Q5) List the three ways to analyze financial statements.State what each of these ways provides to investors and creditors.
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Chapter 16: Introduction to Managerial Accounting
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Q1) A company's organizational chart shows the relationships between departments and divisions and the managers that are responsible for each section.
A)True
B)False
Q2) Which of the following will be included in manufacturing overhead costs?
A)indirect labor and indirect materials used
B)salaries of salesmen
C)direct materials and direct labor
D)delivery costs to ship goods to customers
Q3) Which of the following is a philosophy designed to integrate all organizational areas in order to provide customers with superior products and services,while meeting organizational goals throughout the value chain?
A)Supply Chain Management (SCM)
B)Just-in-Time (JIT)Management
C)Enterprise Resource Planning (ERP)
D)Total Quality Management (TQM)
Q4) All costs incurred in the manufacture of completed products are product costs.
A)True
B)False
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Chapter 17: Job Order Costing
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Q1) Which of the following would most likely be accounted for using a job order costing system?
A)the production of potato chips
B)the production of sports energy drinks
C)the creation of wedding photography portraits
D)the refining of gasoline
Q2) Altima,Inc.finished Job A40 on the last working day of the year.It utilized $360 of direct materials and $3370 of direct labor.Altima uses a predetermined overhead allocation rate based on direct labor costs,which has been fixed at 40%.The entry to record the completion of the job should involve a ________.
A)debit to Finished Goods Inventory $5078 and a credit to Materials Inventory $5078
B)debit to Cost of Goods Sold $5078 and a credit to Finished Goods Inventory $5078
C)debit to Finished Goods Inventory $5078 and a credit to Work-in-Process Inventory $5078
D)debit to Work-in-Process Inventory $5078 and a credit to Finished Goods Inventory $5078
Q3) Why would the manager of a service company need to use job order costing?
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Chapter 18: Process Costing
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Q1) Production cost reports prepared using the first-in,first-out (FIFO)method determine the cost of equivalent units of production by accounting for beginning inventory costs separately from current period costs.
A)True
B)False
Q2) During the month,Barrera Manufacturing incurred (not paid)$45,000 in direct labor costs in Department 1,$22,000 direct labor costs in Department 2,and $3500 of indirect labor costs.Which of the following is NOT part of the summary journal entry to record these transactions? Process costing is used.
A)debit to Manufacturing Overhead for $3500
B)debit to Work-in-Process Inventory for $70,500
C)credit to Wages Payable for $70,500
D)debit to Work-in-Process Inventory-Department 1 for $45,000
Q3) The task of summarizing the flow of physical units is one of the four steps involved in the preparation of the production cost report.
A)True
B)False
Q4) How is a production cost report prepared using the FIFO method?
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Q1) The ________ system pulls materials,labor,and overhead costs into production under a just-in-time management system.
A)purchase-push
B)demand-push
C)purchase-pull
D)demand-pull
Q2) Which of the following is true about value engineering?
A)The purpose of value engineering is to reevaluate and reduce costs while meeting customers' needs.
B)Value engineering is a reevaluation process conducted solely by a company's accounting department.
C)Value engineering results in higher prices for the consumer.
D)The goal of value engineering is to add costs that will benefit customers.
Q3) Companies which use a just-in-time management system do not benefit from a quality management system.
A)True
B)False
Q4) How do just-in-time production systems differ from traditional production systems in their approach to raw materials and labor?
Page 21
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) How is the unit contribution margin calculated?
Q2) Fixed costs per unit is inversely proportional to the volume of units produced.
A)True
B)False
Q3) If a company reduces its fixed costs,the operating income will increase by the same amount as the cost reduction.
A)True
B)False
Q4) The amount by which sales can decrease before the company incurs an operating loss is called the breakeven point.
A)True
B)False
Q5) Which of the following is a period cost?
A)manufacturing overhead
B)direct labor cost
C)direct materials cost
D)administrative cost
Q6) The sales level at which operating income is zero is called the breakeven point.
A)True
B)False
Page 22
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Chapter 21: Variable Costing
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Q1) Which of the following is considered a period cost under variable costing but not under absorption costing?
A)fixed selling and administrative costs
B)variable manufacturing costs
C)fixed manufacturing overhead
D)variable selling and administrative costs
Q2) When there is no beginning Finished Goods Inventory and all the goods that are produced are sold,the operating income ________.
A)will be higher under absorption costing than variable costing
B)will be lower under absorption costing than variable costing
C)will be higher than the gross profit under variable costing
D)will be the same for both absorption costing and variable costing
Q3) Which of the following will appear as a line item in the traditional format of an income statement?
A)contribution margin
B)total variable costs (manufacturing and non-manufacturing)
C)total fixed costs (manufacturing and non-manufacturing)
D)gross profit
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Chapter 22: Master Budgets
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Q1) An operational budget is a short-term financial plan that coordinates activities needed to achieve short-term goals.
A)True
B)False
Q2) The ________ details how the business expects to go from the beginning cash balance to the desired ending cash balance.
A)capital expenditures budget
B)budgeted income statement
C)cash flow statement
D)cash budget
Q3) List the three sections of the cash budget for a manufacturer.
Q4) The level of forecasted sales has little effect on other elements of the master budget.
A)True
B)False
Q5) Amounts needed for the preparation of the budgeted balance sheet for a manufacturer are taken from various operating and financial budgets.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Oceanside Marine Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor.Oceanside uses standard costs to prepare its flexible budget.For the first quarter of the year,direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 2 pound per unit;$12 per pound
Direct labor: 4 hours per unit;$18 per hour
Oceanside produced 3000 units during the quarter.At the end of the quarter,an examination of the direct materials records showed that the company used 7500 pounds of direct materials and actual total materials costs were $98,400. What is the direct materials cost variance? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )
A)$3360 Unfavorable
B)$3360 Favorable
C)$8400 Unfavorable
D)$8400 Favorable
Q2) List the direct materials variances,and briefly describe each.
Q3) Define variance.What is the difference between a favorable and an unfavorable variance?
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Companies in which owners or top executives make all of the planning,directing and controlling decisions are ________ companies.
A)centralized
B)decentralized
C)formalized
D)segmented
Q2) Raven,Inc.has a division that manufactures a component that sells for $190 and has a variable cost of $35.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $22.What is the minimum transfer price if the division is operating below its capacity?
A)$190
B)$35
C)$57
D)$22
Q3) To adequately evaluate an investment center's financial performance,summary performance measures should include both the division's operating income and its assets.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) Which of the following is always irrelevant to short-term operating decisions?
A)relevant cost
B)differential cost
C)opportunity cost
D)sunk cost
Q2) Differential analysis is a common approach to making long-term business decisions.
A)True
B)False
Q3) Sundial Company manufactures and sells watches for $40 each.Tick-Tock Company has offered Sundial $30 per watch for a one-time order of 5900 watches.The total manufacturing cost per watch is $30 per unit and consists of variable costs of $22 per watch and fixed overhead costs of $8 per watch.Assume that Sundial has excess capacity and that the special pricing order would not adversely affect regular sales.What is the change in operating income that would result from accepting the special sales order?
A)increase of $47,200
B)decrease of $47,200
C)increase of $177,000
D)decrease of $177,000
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Chapter 26: Capital Investment Decisions
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Q1) Which of the following is a capital budgeting method that ignores the time value of money?
A)payback
B)internal rate of return
C)return on assets
D)net present value
Q2) Which of the following situations suggests the acceptance of an investment proposal?
A)The present value of the net cash inflows exceeds the initial investment.
B)The IRR is lower than the hurdle rate.
C)The cash inflows are less than the initial investment.
D)The investment will have a residual value.
Q3) The net present value method of evaluating capital investments suggests that an investment with discounted net cash inflows which exceed the initial cost of the investment is desirable.
A)True
B)False
Q4) All else being equal,investments with longer payback periods are preferable. A)True
B)False
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Chapter 27: Accounting Information Systems
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Q1) Midwest Enterprises uses special journals.The company borrowed $10,000 from First State Bank.This transaction is recorded in the ________.
A)general journal
B)debt journal
C)cash receipts journal
D)cash payments journal
Q2) An accounting information system is said to have good compatibility,if it ________.
A)works smoothly with the business's employees and organizational structure
B)safeguards a business's assets and reduces the likelihood of fraud and errors
C)provides information that will improve decision making and reduce uncertainty
D)accommodates changes in the business over time
Q3) Control
A)Provides information that will improve decision making and reduce uncertainty.
B)Benefits received outweigh the cost of the system.
C)Works smoothly with the business's employees and organization structure.
D)Can accommodate changes in the business over time.
E)Provides safeguards for a business's assets and reduces the likelihood of fraud and errors.
Q4) Describe the transactions recorded in the cash payments journal.
Page 29
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