Question

1. internal controls primarily exist to:

a. increase cogs
b. prevent errors/fraud and ensure accurate reporting
c. reduce sales tax rates
d. eliminate payroll taxes

1. on a pro forma income statement, gross profit equals:

a. revenue - cogs (cost of goods sold)
b. sales tax
c. assets - liabilities
d. cash in - cash out

Explanation:

• Question 13: Internal controls are designed to safeguard assets, prevent errors and fraud, and ensure accurate financial reporting. Option A (increasing COGS) is not a goal of internal controls. Option C (reducing sales tax rates) and Option D (eliminating payroll taxes) are related to tax policies, not internal controls.
• Question 14: The formula for gross profit on an income statement is Revenue - COGS (Cost of Goods Sold). Option B (Sales Tax) is a separate line item. Option C (Assets - Liabilities) is the formula for Owner's Equity. Option D (Cash In - Cash Out) is related to cash flow, not gross profit.

Answer:

1. B. Prevent errors/fraud and ensure accurate reporting
2. A. Revenue - COGS (Cost of Goods Sold)