Ch.7 Wiley Plus MC

question

Which of the following is not an element of the fraud triangle?
answer

Segregation of duties.
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Which one of the following is not a primary component of an internal control system?
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Rationalization.
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Which of the following is not a reason why an organization establishes a system for internal control?
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All of the above are reasons why an organization establishes a system for internal control. -To safeguard its assets -To increase efficiency of operations -To ensure compliance with laws and regulations
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Which of the following statements is correct?
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The person who has custody of assets should not perform the record keeping for the assets.
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Internal auditors
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evaluate the system of internal controls for the companies that employ them.
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Which of the following is not a principle of internal control?
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Collusion between employees.
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Under which of the following do computer programs that limit unauthorized access to certain files fall?
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Physical, mechanical, and electronic controls.
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Of which of the following is obtaining insurance protection against dishonest employees an example?
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Bonding.
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Reasonable assurance rests on the premise that
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The costs of establishing controls should not exceed their expected benefit.
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Which one of the following statements is correct?
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Internal auditors are company employees who evaluate the effectiveness of the company’s system of internal control on a continuous basis.
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For what purpose are physical controls used in a business?
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To enhance the accuracy and reliability of its accounting records and to safeguard its assets.
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Which one of the following is not one of the principles of internal control?
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Financial performance measures.
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Which one of the following is not a physical control?
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Independent bank reconciliations.
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Which of the following was not a result of the Sarbanes-Oxley Act?
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Companies must file financial statements with the Internal Revenue Service.
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Which one of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system?
answer

All of these control activities are relevant to a computerized system. -Establishment of responsibility -Segregation of duties -Independent internal verification
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Handly Inc. permits only designated personnel such as cashiers to handle cash receipts. What principle is being applied?
answer

Establishment of responsibility.
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Aptara Construction Supplies has a cashier who is also the accounts receivable clerk for the company. Which internal control principle is violated?
answer

Segregation of duties.
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Which internal control principle is most important in a control system for handling cash receipts?
answer

Segregation of duties.
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Which one of the following is not a control procedure used for over-the-counter receipts?
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Pre-numbered checks are used to buy supplies.
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Which of the following is an effective internal control over cash disbursements?
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All of the above are part of effective internal control over cash disbursements -The use of prenumbered checks -The storage of blank checks in a secure place -The separation of authorization of checks and the actual writing of the checks
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What is an authorization form called which is prepared for each expenditure in most medium and large organizations?
answer

Voucher.
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For which item below might a bank issue a credit memorandum to a depositor’s account?
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Interest earned.
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For which of the following might a bank issue a debit memorandum to a depositor’s account?
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Monthly service charges.
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Springer Company listed outstanding checks totaling $4,500 on its September bank reconciliation. In October, the company issued checks totaling $45,700. The October bank statement shows that checks totaling $39,800 cleared the bank. In addition, a check from one of Springer’s customers in the amount of $500 was returned as NSF. The outstanding checks on the October bank reconciliation should total:
answer

$10,400 (The amount of checks outstanding at the beginning of the period plus the checks issued in the period represents the total checks that should clear the bank account. Subtracting the checks that cleared results in the October outstanding checks amount.)
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Jones Company collected the following information to prepare its May bank reconciliation: Cash balance per books, May 31 $5,300 Deposits in transit 510 Notes receivable with interest collected by bank 580 Bank service charges 30 Outstanding checks 180 NSF check 150
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$5,700 (The book side of the cash reconciliation begins with $5,300 to which adjustments are made for amounts collected by the bank, which is the note receivable of $580. Deductions are made for amounts the bank deducted from the account, which include the bank service charges of $30 and the NSF check of $150, to arrive at the adjusted cash balance per books of $5,700. Outstanding check and deposits in transit affect the bank side of the reconciliation.)
question

Barker Company collected the following information to prepare its November bank reconciliation: Cash balance per bank statement, November 30 $21,000 Note receivable plus interest collected 9,000 Outstanding checks 6,000 Deposits in transit 5,400 Bank service charges 85 NSF check 2,100 How much is the cash balance per books prior to preparing the reconciliation?
answer

$13,585 (From the bank’s ending balance ($21,000), add the deposits in transit ($5,400) and subtract the outstanding checks ($6,000), to arrive at the adjusted bank balance totaling $20,400. The bank side will show the note receivable ($9,000), as an addition, and the service fees ($85) and the NSF checks ($2,100) as decreases. The total of the book side is the same as the total of the bank side, $20,400. You can then solve for the unadjusted book balance of $13,585.)
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For which of the following will an adjusting entry be required as the result of a bank reconciliation?
answer

NSF checks.
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Which of the following will not require an adjusting entry?
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Deposits in transit.
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Which is the adjusting entry Max Company would prepare when the bank collects a $200 note receivable from one of Max’s customers?
answer

Cash 200 Accounts Receivable 200
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Which of the following is the correct adjusting entry for the account holder when the bank submits a debit memorandum for a monthly service charge of $30?
answer

Miscellaneous Expense 30 Cash 30
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Which one of the statements below is true?
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The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.
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As used in a bank reconciliation, how are deposits in transit handled?
answer

Added to the bank balance.
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Why should a bank reconciliation be prepared?
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To explain any difference between the depositor’s balance per books and the balance per bank.
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A company’s monthly bank statement shows a collection of a note receivable by the bank in the amount of $500. Which of the following is one part of the journal entry needed to record the note collection by the company?
answer

Credit to Accounts Receivable for $500.
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If cash is restricted as to its use, and is expected to be used within the next year, how is it reported?
answer

Reported as a current asset separate from Cash and Cash Equivalents on the balance sheet.
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A company has the following items at year end: cash on hand, $1,000; cash in a checking account, $3,000; cash in a savings account, $5,000; postage stamps, $50; and Treasury bills, $10,000 that mature in less than 90 days. How much should the company report as cash and cash equivalents on its balance sheet?
answer

$19,000 (Cash equivalents are highly liquid investments that are readily convertible to known amounts of cash, and are so near their maturities that their market value is relative insensitive to changes in interest rates. $1,000 + $3,000 + $5,000 + $10,000 = $19,000)
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On which financial statement(s) will cash be reported?
answer

Balance sheet and the statement of cash flows.
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Which of the following items in a cash drawer at November 30 is not reported as cash on the November 30 balance sheet?
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A customer check dated December 1.
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Which statement correctly describes the reporting of cash?
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Cash is listed first in the current assets section of the balance sheet.
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Which of the following would not be an example of good cash management?
answer

Investing temporary excess cash into the stock of a small company.
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Which of the following is not a basic principle of cash management?
answer

Grant customers as much time as they want to pay their receivables.
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Which of the following is not a basic principle of cash management?
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Keep inventory levels high.
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With respect to cash management, most companies try to
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Invest idle cash, even if only overnight.

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