Financial Accounting IFRS Edition 2nd Edition Weygandt, Kimmel, Kieso Test Bank

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Financial Accounting IFRS Edition 2nd Edition Weygandt, Kimmel, Kieso Test Bank

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CHAPTER 7

FRAUD, INTERNAL CONTROL, AND CASH

CHAPTER LEARNING OBJECTIVES
1. Define fraud and internal control. A fraud is a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer. The fraud triangle refers to the three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization. Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.
2. Identify the principles of internal control activities. The principles of internal control are establishment of responsibility; segregation of duties; documentation procedures; physical controls; independent internal verification; and human resource controls such as bonding and requiring employees to take vacations.
3. Explain the applications of internal control principles to cash receipts. Internal controls over cash receipts include: (a) designating specific personnel to handle cash; (b) assigning different individuals to receive cash, record cash, and maintain custody of cash; (c) using remittance advices for mail receipts, cash register tapes for over-the-counter receipts, and deposit slips for bank deposits; (d) using company safes and bank vaults to store cash with access limited to authorized personnel, and using cash registers in executing over-the-counter receipts; (e) making independent daily counts of register receipts and daily comparison of total receipts with total deposits; and (f) bonding personnel that handle cash and requiring them to take vacations.
4. Explain the applications of internal control principles to cash disbursements. Internal controls over cash disbursements include: (a) having specific individuals such as the treasurer authorized to sign checks and approve invoices; (b) assigning different individuals to approve items for payment, pay the items, and record the payment; (c) using prenumbered checks and accounting for all checks, with each check supported by an approved invoice; (d) storing blank checks in a safe or vault with access restricted to authorized personnel, and using a checkwriting machine to imprint amounts on checks; (e) comparing each check with the approved invoice before issuing the check, and making monthly reconciliations of bank and book balances; and (f) bonding personnel who handle cash, requiring employees to take vacations, and conducting background checks.
5. Describe the operation of a petty cash fund. Companies operate a petty cash fund to pay relatively small amounts of cash. They must establish the fund, make payments from the fund, and replenish the fund when the cash in the fund reaches a minimum level.
6. Indicate the control features of a bank account. A bank account contributes to good internal control by providing physical controls for the storage of cash. It minimizes the amount of currency that a company must keep on hand, and it creates a double record of a depositors bank transactions.

7. Prepare a bank reconciliation. It is customary to reconcile the balance per books and balance per bank to their adjusted balances. The steps in the reconciling process are to determine deposits in transit, outstanding checks, errors by the depositor or the bank, and unrecorded bank memoranda.
8. Explain the reporting of cash. Companies list cash last in the current assets section of the statement of financial position. In some cases, they report cash together with cash equivalents. Cash restricted for a special purpose is reported separately as a current asset or as a non-current asset, depending on when the cash is expected to be used.

TRUE-FALSE STATEMENTS
1. The most important element of the fraud triangle is rationalization.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

2. Employees sometimes commit fraud because of personal financial problems caused by too much debt.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

3. The safeguarding of assets is an objective of a companys system of internal control.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

4. Internal control systems must be monitored periodically for their adequacy.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

5. Internal control is most effective when several people are responsible for a given task.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

6. The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

7. Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

8. The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

9. An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as check on the other.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

10. A segregation of duties among employees eliminates the possibility of collusion.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

11. The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

12. In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

13. Firms use physical controls primarily to safeguard their assets.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

14. For efficiency of operations and better control over cash, a company should maintain only one bank account.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

15. Cash registers are an important internal control device used in controlling over-the-counter receipts.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

16. Checks received in the mail should be immediately stamped NSF to prevent unauthorized cashing of the check.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

17. Control over cash disbursements is improved if major expenditures are paid by check.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

18. Electronic Funds Transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another.

Ans: T, LO: 7, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Technology, AICPA BB: Resource Management, AICPA FN: None, AICPA PC: Project Management, IMA: Business Economics

19. A voucher system is used by many large companies as a means of controlling cash receipts.

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

20. The petty cash fund eliminates the need for a bank checking account.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

21. Cash register overages are deposited in the petty cash fund and cash shortages are made-up from the petty cash fund.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

22. A deposit ticket is a negotiable instrument that can be transferred to another party by endorsement.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: None, AICPA PC: None, IMA: Business Economics
23. If a company deposits all its receipts in the bank and pays all its bills by check, then the monthly bank statement balance will always agree with the companys record of its checking account balance.

Ans: F, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

24. Checks from customers who pay their accounts promptly are called outstanding checks.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: Communications, IMA: Business Economics

25. All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.

Ans: T, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

26. A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled checks.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

27. Cash equivalents are highly liquid investments that can be converted into a specific amount of cash.

Ans: T, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

28. Cash which is restricted for a specific use should be separately reported.

Ans: T, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

29. Cash equivalents, such as highly liquid investments that can be converted into a specific amount of cash, are currently reported with cash on the statement of financial position.

Ans: T, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

30. Cash equivalents are currently reported as short-term investments on the statement of financial position.

Ans: F, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

31. Savings accounts are usually classified as cash on the statement of financial position.

Ans: T, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

32. Certificates of deposit are currently classified as cash on the statement of financial position.

Ans: T, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

33. Petty cash funds are not included in the cash balance reported on the statement of financial position.

Ans: F, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

34. A compensating balance is included in the amount of cash reported on the statement of financial position.

Ans: F, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

35. Because cash is the least liquid current asset it is listed last in the current assets section of the statement of financial position.

Ans: F, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

36. Short-term, highly liquid investments are currently reported as short-term investments on the statement of financial position.

Ans: F, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
37. Because cash is the most liquid current asset it is listed first in the current assets section of the statement of financial position.

Ans: F, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

38. Internal control consists of all the related methods and measures adopted within an organisation to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

39. In general, documents should be prenumbered and all documents should be accounted for.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Internal Controls

40. Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

41. Personnel who handle cash receipts should have the option of taking a vacation or not.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

42. The duties of approving an item for payment and paying the item should be done by different departments or individuals.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

43. The custodian of the petty cash fund has the responsibility of recording a journal entry every time cash is used from the fund.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Internal Controls

44. A debit memorandum could show the collection of a note receivable by the bank.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

45. To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.

Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Answers to True-False Statements
Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. F 8. T 15. T 22. F 29. T 36. F 43. F
2. T 9. F 16. F 23. F 30. F 37. F 44. F
3. T 10. F 17. T 24. F 31. T 38. T 45. T
4. T 11. T 18. T 25. T 32. T 39. T
5. F 12. F 19. F 26. F 33. F 40. F
6. T 13. T 20. F 27. T 34. F 41. F
7. F 14. F 21. F 28. T 35. F 42. T

MULTIPLE CHOICE QUESTIONS
46. 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. Increase efficiency of operations

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

47. Which of the following is not one of the main factors that contribute to fraudulent activity?
a. Opportunity
b. Incompatible duties
c. Financial pressure
d. Rationalization

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

48. Internal control is defined, in part, as a plan that safeguards
a. all statement of financial position accounts.
b. assets.
c. liabilities.
d. equity.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

49. Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them
a. increases the potential for errors and irregularities.
b. decreases the potential for errors and irregularities.
c. is an example of good internal control.
d. is a good example of safeguarding the companys assets.

Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

50. The custodian of a company asset should
a. have access to the accounting records for that asset.
b. be someone outside the company.
c. not have access to the accounting records for that asset.
d. be an accountant.

Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

51. Internal auditors
a. are hired by accounting firms to audit business firms.
b. are employees of the taxing authority who evaluate the internal controls of companies filing tax returns.
c. evaluate the system of internal controls for the companies that employ them.
d. cannot evaluate the system of internal controls of the company that employs them because they are not independent.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

52. When two or more people get together for the purpose of circumventing prescribed controls, it is called
a. a fraud committee.
b. collusion.
c. a division of duties.
d. bonding of employees.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

53. The principle of establishing responsibility does not include
a. one person being responsible for one task.
b. authorization of transactions.
c. independent internal verification.
d. approval of transactions.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

54. 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. segregation of duties.
d. rotation of duties.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

55. Two individuals at a retail store work the same cash register. You evaluate this situation as
a. a violation of establishment of responsibility.
b. a violation of segregation of duties.
c. supporting the establishment of responsibility.
d. supporting internal independent verification.

Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

56. An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of
a. establishment of responsibility is violated.
b. independent internal verification is violated.
c. documentation procedures is violated.
d. segregation of duties is violated.

Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

57. Controls that enhance the accuracy and reliability of the accounting records are
a. automated controls.
b. external controls.
c. physical controls.
d. human resource.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

58. Related selling activities do not include
a. ordering the merchandise.
b. making a sale.
c. shipping the goods.
d. billing the customer.

Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

59. Related purchasing activities include
a. ordering, receiving, paying.
b. ordering, selling, paying.
c. ordering, shipping, billing.
d. selling, shipping, paying.

Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

60. Joe is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates
a. documentation procedures are violated.
b. independent internal verification is violated.
c. segregation of duties is violated.
d. establishment of responsibility is violated.

Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

61. Physical controls to safeguard assets do not include
a. cashier department supervisors.
b. vaults.
c. television monitors.
d. security guards.

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

62. In large companies, the independent internal verification procedure is often assigned to
a. computer operators.
b. management.
c. internal auditors.
d. outside auditors.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

63. Maximum benefit from independent internal verification is obtained when
a. it is made on a pre-announced basis.
b. it is done by the employee possessing custody of the asset.
c. discrepancies are reported to management.
d. it is done at the time of the audit.

Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

64. If employees are bonded
a. it means that they are not allowed to handle cash.
b. they have worked for the company for at least 10 years.
c. they have been insured against misappropriation of assets.
d. it is impossible for them to steal from the company.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

65. Mrs. Smith has worked for Grand Inc., for 20 years without taking a vacation. An internal control feature that would address this situation would be
a. human resource controls.
b. establishment of responsibility.
c. physical controls.
d. documentation procedures.

Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

66. A system of internal control
a. is infallible.
b. can be rendered ineffective by employee collusion.
c. invariably will have costs exceeding benefits.
d. is premised on the concept of absolute assurance.

Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

67. Checks received through the mail should
a. immediately be endorsed For Deposit Only.
b. be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the customers account.
c. be cashed at the bank as soon as possible.
d. be rung up on a cash register immediately.

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

68. Proper control for over-the-counter cash receipts includes
a. a cash register with totals visible to the customer.
b. using electronic cash registers with no tapes.
c. cash count sheets requiring only the supervisors signature.
d. cash count sheets requiring only the cashiers signature.

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

69. A company stamps checks received in the mail with the words For Deposit Only. This endorsement is called a(n)
a. blank endorsement.
b. rubber stamp.
c. restrictive endorsement.
d. operational endorsement.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

70. The daily cash count of cash register receipts made by department supervisors is an example of
a. human resource controls.
b. independent internal verification.
c. establishment of responsibility.
d. segregation of duties.

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

71. The use of remittance advices for mail receipts is an example of
a. documentation procedures.
b. human resource controls.
c. physical controls.
d. independent internal verification.

Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics

72. Allowing only designated personnel to handle cash receipts is an example of
a. establishment of responsibility.
b. segregation of duties.
c. documentation procedures.
d. independent internal verification.

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

73. Control over cash disbursements is generally more effective when
a. all bills are paid in cash.
b. disbursements are made by the accounts payable subsidiary clerk.
c. payments are made by check.
d. all purchases are made on credit.

Ans: C, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

74. Reconciling the bank statement monthly is an example of
a. segregation of duties.
b. independent internal verification.
c. establishment of responsibility.
d. documentation procedures.

Ans: B, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

75. An exception to disbursements being made by check is acceptable when cash is paid
a. to an owner.
b. to employees as wages.
c. from petty cash.
d. to employees as loans.

Ans: C, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

76. Allowing only the treasurer to sign checks is an example of
a. documentation procedures.
b. segregation of duties.
c. human resource controls.
d. establishment of responsibility.

Ans: D, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

77. Blank checks
a. should be safeguarded.
b. should be pre-signed.
c. do not need to be safeguarded since they must be signed to be valid.
d. should not be prenumbered.

Ans: A, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

78. An employee authorized to sign checks should not record
a. owner cash contributions.
b. mail receipts.
c. cash disbursement transactions.
d. sales transactions.

Ans: C, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

79. A voucher system is a series of prescribed control procedures
a. to check the credit worthiness of customers.
b. designed to assure that disbursements by check are proper.
c. which eliminates the need for a sales journal.
d. specifically designed for small firms who may not have checking accounts.

Ans: B, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

80. Under a voucher system, a prenumbered voucher is prepared for every
a. cash receipt, regardless of source.
b. transaction entered into by the business.
c. expenditure except those made from petty cash.
d. journal entry.

Ans: C, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

81. A credit balance in Cash Over and Short is reported as a(n)
a. asset.
b. liability.
c. miscellaneous expense.
d. miscellaneous revenue.

Ans: D, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

82. The entry to replenish a petty cash fund includes a credit to
a. Petty Cash.
b. Cash.
c. Freight-In.
d. Postage Expense.

Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

83. A debit balance in Cash Over and Short is reported as a
a. contra asset.
b. miscellaneous asset.
c. miscellaneous expense.
d. miscellaneous revenue.

Ans: C, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

84. A petty cash fund of $100 is replenished when the fund contains $4 in cash and receipts for $93. The entry to replenish the fund would
a. credit Cash Over and Short for $3.
b. credit Miscellaneous Revenue for $3.
c. debit Cash Over and Short for $3.
d. debit Miscellaneous Expense for $3.

Ans: C, LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

85. A petty cash fund is generally established in order to
a. pay for all merchandise purchased on account.
b. pay employees wages.
c. make loans internally to employees.
d. pay relatively small expenditures.

Ans: D, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

86. A petty cash fund should be replenished
a. every day.
b. at the end of every accounting period.
c. once a year.
d. as soon as an expense is paid from the fund.

Ans: B, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

87. A petty cash fund should not be used for
a. postage due.
b. loans to the petty cash custodian.
c. taxi fares.
d. customer lunches.

Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

88. The size of the petty cash fund is dependent on
a. the wishes of the custodian of the fund.
b. anticipated disbursements for the year.
c. anticipated disbursements for a three- to four-week period.
d. the size of the regular cash account.

Ans: C, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

89. Replenishing the petty cash fund requires
a. a debit to Cash.
b. a credit to Petty Cash.
c. debits to various expense accounts.
d. no accounting entry.

Ans: C, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

90. Entries are made to the Petty Cash account when
a. establishing the fund.
b. making payments out of the fund.
c. recording shortages in the fund.
d. replenishing the fund.

Ans: A, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

91. A 200 petty cash fund has cash of 35 and receipts of 160. The journal entry to replenish the account would include a credit to
a. Cash for 165.
b. Petty Cash for 165.
c. Cash Over and Short for 5.
d. Cash for 160.

Ans: A, LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

92. A $100 petty cash fund has cash of $17 and receipts of $82. The journal entry to replenish the account would include a
a. debit to Cash for $82.
b. credit to Petty Cash for $83.
c. debit to Cash Over and Short for $1.
d. credit to Cash for $82.

Ans: C, LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

93. A $200 petty cash fund has cash of $36 and receipts of $168. The journal entry to replenish the account would include a
a. debit to Cash for $168.
b. credit to Petty Cash for $168.
c. credit to Cash Over and Short for $4.
d. credit to Cash for $168.

Ans: C, LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

94. If a petty cash fund is established in the amount of $200, and contains $118 in cash and $85 in receipts for disbursements when it is replenished, the journal entry to record replenishment should include credits to which of the following accounts?
a. Petty Cash, $85.
b. Petty Cash, $82.
c. Cash, $82; Cash Over and Short, $3.
d. Cash, $82.

Ans: C, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

95. If a petty cash fund is established in the amount of 250, and contains 145 in cash and 100 in receipts for disbursements when it is replenished, the journal entry to record replenishment should include credits to which of the following accounts?
a. Petty Cash, 100.
b. Petty Cash, 105.
c. Cash, 100; Cash Over and Short, 5.
d. Cash, 105.

Ans: D, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

96. A CHF110 petty cash fund has cash of CHF27 and receipts of CHF82. The journal entry to replenish the account would include a
a. debit to Cash for CHF82.
b. credit to Petty Cash for CHF110.
c. debit to Cash Over and Short for CHF1.
d. credit to Cash for CHF82.

Ans: C, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

97. Bellingham Companys 150 petty cash fund has cash of 28 and receipts of 120. The journal entry to replenish the account would include a
a. debit to Cash for 150.
b. debit to Cash Over and Short for 2.
c. credit to Petty Cash for 120.
d. credit to Cash for 120.

Ans: B, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

98. Gabana Inc.s 100 petty cash fund has cash of 6 and receipts of 91. The journal entry to replenish the account would include
a. credit to Cash Over and Short for 3.
b. credit to Petty Cash for 94.
c. debit to Cash for 91.
d. credit to Cash for 94.

Ans: D, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

99. On May 1, 2014, Vuitton Company established a petty cash fund by issuing a check for 500 to Antoinette Mercier, the custodian of the petty cash fund. On May 31, 2014, Mercier submitted the following paid petty cash vouchers for replenishment of the petty cash fund when there is 20 cash in the fund:

Freight-In 166
Supplies Expense 130
Entertainment of clients 124
Postage Expense 50

The journal entry to establish the petty cash fund would include a
a. debit to Cash for 500.
b. debit to Cash Over and Short for 500.
c. credit to Cash for 500.
d. credit to Accounts Payable for 500.

Ans: C, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

100. On May 1, 2014, Vuitton Company established a petty cash fund by issuing a check for 500 to Antoinette Mercier, the custodian of the petty cash fund. On May 31, 2014, Mercier submitted the following paid petty cash vouchers for replenishment of the petty cash fund when there is 20 cash in the fund:

Freight-In 166
Supplies Expense 130
Entertainment of clients 124
Postage Expense 50

The journal entry to replenish the account would include a
a. debit to Cash Over and Short for 10.
b. credit to Petty Cash for 470.
c. debit to Cash for 470.
d. credit to Cash for 500.

Ans: A, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

101 On October 2, 2014, Bienvenu Manufacturing Company established a petty cash fund by issuing a check for 700 to the custodian of the petty cash fund. On October 31, 2014, the custodian submitted the following paid petty cash vouchers for replenishment of the petty cash fund when there is 30 cash in the fund:

Freight-In 290
Supplies Expense 110
Entertainment of clients 178
Postage Expense 100

The journal entry to establish the petty cash fund would include a
a. credit to Cash for 700.
b. credit to Cash Over and Short for 700.
c. credit to Accounts Receivable for 700.
d. credit to Accounts payable for 700.

Ans: A, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

102 On October 2, 2014, Bienvenu Manufacturing Company established a petty cash fund by issuing a check for 700 to the custodian of the petty cash fund. On October 31, 2014, The custodian submitted the following paid petty cash vouchers for replenishment of the petty cash fund when there is 30 cash in the fund:

Freight-In 290
Supplies Expense 110
Entertainment of clients 178
Postage Expense 100

The journal entry to replenish the account would include
a. debit to Cash Over and Short for 8.
b. credit to Cash Over and Short for 8.
c. debit to Petty Cash for 678.
d. credit to Cash for 700.

Ans: B, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

103. The petty cash fund of CHF200 for the Hansen Company appeared as follows on July 31, 2014:

Cash CHF7.50
Petty cash vouchers
Freight-in CHF38.50
Postage 45.00
Balloons for a special occasion 27.00
Client entertainment 65.00

On July 31, the office manager gives instruction to increase the petty cash fund to CHF300.

The journal entry to replenish the petty cash fund would include a
a. debit to Petty Cash for CHF200.
b. credit to Cash Over and Short for CHF17.
c. credit to Cash for CHF192.50.
d. debit to Accounts Receivable for CHF17.

Ans: C, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

104. The petty cash fund of CHF200 for the Hansen Company appeared as follows on July 31, 2014:

Cash CHF7.50
Petty cash vouchers
Freight-in CHF38.50
Postage 45.00
Balloons for a special occasion 27.00
Client entertainment 65.00

On July 31, the office manager gives instruction to increase the petty cash fund to CHF300.

The journal entry to increase the petty cash fund would include
a. credit to Cash for CHF292.50.
b. credit to Petty Cash for CHF192.50.
c. debit to Cash for CHF92.50.
d. debit to Petty Cash for CHF100.

Ans: D, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
105. Which one of the following is not necessarily a party to a check?
a. Maker
b. Buyer
c. Payee
d. Payer

Ans: B, LO: 6, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

106. A bank statement
a. lets a depositor know the financial position of the bank as of a certain date.
b. is a credit reference letter written by the depositors bank.
c. is a bill from the bank for services rendered.
d. shows the activity which increased or decreased the depositors account balance.

Ans: D, LO: 6, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

107. Which one of the following would not cause a bank to debit a depositors account?
a. Bank service charge
b. Collection of a note receivable
c. Wiring of funds to other locations
d. Checks marked NSF

Ans: B, LO: 6, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

108. A company maintains the asset account, Cash in Bank, on its books, while the bank maintains an account which is
a. a contra-asset account.
b. a liability account.
c. also an asset account.
d. an equity account.

Ans: B, LO: 6, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

109. A remittance advice attached to a company check provides
a. details about the running cash balance in the checking account.
b. the magnetic bank routing numbers.
c. an explanation of the purpose of the check.
d. the signature space for the maker.

Ans: C, LO: 6, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

110. A deposit made by a company will appear on the bank statement as a
a. debit.
b. credit.
c. debit memorandum.
d. credit memorandum.

Ans: B, LO: 6, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

111. A check returned by the bank marked NSF means
a. no service fee.
b. no signature found.
c. not satisfactorily filled-out.
d. not sufficient funds.

Ans: D, LO: 6, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
112. A debit memorandum would not be issued by the bank for
a. a bank service charge.
b. the issuance of travelers checks.
c. the wiring of funds.
d. the collection of a notes receivable.

Ans: D, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

113. If the month-end bank statement shows a balance of 720,000, outstanding checks are 240,000, a deposit of 80,000 was in transit at month end, and a check for 10,000 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is
a. 550,000.
b. 570,000.
c. 410,000.
d. 870,000.

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

114. In preparing its bank reconciliation for the month of April 2014, Franklin, Inc. has available the following information.
Balance per bank statement, 4/30/14 $58,710
NSF check returned with 4/30/14 bank statement 625
Deposits in transit, 4/30/14 7,500
Outstanding checks, 4/30/14 7,800
Bank service charges for April 30
What should be the adjusted cash balance at April 30, 2014?
a. $59,055.
b. $58,410.
c. $57,735.
d. $57,705.

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

115. The cash account shows a balance of $55,000 before reconciliation. The bank statement does not include a deposit of $2,300 made on the last day of the month. The bank statement shows a collection by the bank of $940 and a customers check for $320 was returned because it was NSF. A customers check for $450 was recorded on the books as $540, and a check written for $79 was recorded as $97. The correct balance in the cash account was
a. $55,512.
b. $55,548.
c. $55,728.
d. $55,848.

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

116. The cash account shows a balance of $75,000 before reconciliation. The bank statement does not include a deposit of $4,600 made on the last day of the month. The bank statement shows a collection by the bank of $1,880 and a customers check for $640 was returned because it was NSF. A customers check for $790 was recorded on the books as $970, and a check written for $159 was recorded as $195. The correct balance in the cash account was
a. $76,024.
b. $76,096.
c. $76,456.
d. $80,696.

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

117. If the month-end bank statement shows a balance of $90,000, outstanding checks are $30,000, a deposit of $10,000 was in transit at month end, and a check for $1,250 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is
a. $68,750.
b. $71,250.
c. $51,250.
d. $108,750.

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

118. In preparing its bank reconciliation for the month of April 2014, Gantner, Inc. has the following information available.
Balance per bank statement, 4/30/14 $73,280
NSF check returned with 4/30/14 bank statement 900
Deposits in transit, 4/30/14 10,000
Outstanding checks, 4/30/14 10,400
Bank service charges for April 40
What should be the adjusted cash balance at April 30, 2014?
a. $73,740.
b. $72,880.
c. $71,980.
d. $71,940.

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

119. In preparing its August 31, 2014 bank reconciliation, Acme Corp. has the following information available.
Balance per bank statement, 8/31/14 $19,650
Deposit in transit, 8/31/14 3,900
Return of customers check not sufficient funds, 8/30/14 600
Outstanding checks, 8/31/14 2,750
Bank service charges for August 100

At August 31, 2014, Acmes adjusted cash balance is
a. $20,800.
b. $20,200.
c. $20,100.
d. $18,500.

Ans: A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
120. Tyler, Inc. had the following bank reconciliation at March 31, 2014:
Balance per bank statement, 3/31/14 37,200
Add: Deposit in transit 10,300
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31/14 34,900
Data per bank for the month of April 2014 follow:
Deposits 44,700
Disbursements 49,700
All reconciling items at March 31, 2014 cleared the bank in April. Outstanding checks at April 30, 2014 totaled 6,000. There were no deposits in transit at April 30, 2014. What is the cash balance per books at April 30, 2014?
a. 26,200
b. 29,900
c. 32,200
d. 36,500

Ans: A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

121. On a bank reconciliation, deposits in transit are
a. added to the bank balance.
b. deducted from the bank balance.
c. added to the book balance.
d. deducted from the book balance.

Ans: A, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

122. A bank reconciliation should be prepared
a. whenever the bank refuses to lend the company money.
b. when an employee is suspected of fraud.
c. to explain any difference between the depositors balance per books and the balance per bank.
d. by the person who is authorized to sign checks.

Ans: C, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

123. Deposits in transit
a. have been recorded on the companys books but not yet by the bank.
b. have been recorded by the bank but not yet by the company.
c. have not been recorded by the bank or the company.
d. are checks from customers which have not yet been received by the company.

Ans: A, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

124. In preparing a bank reconciliation, outstanding checks are
a. added to the balance per bank.
b. deducted from the balance per books.
c. added to the balance per books.
d. deducted from the balance per bank.

Ans: D, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

125. If a check correctly written and paid by the bank for $517 is incorrectly recorded on the companys books for $571, the appropriate treatment on the bank reconciliation would be to
a. add $54 to the banks balance.
b. add $54 to the books balance.
c. deduct $54 from the banks balance.
d. deduct $517 from the books balance.

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

126. Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry:
a. Accounts Receivable
Cash
b. Cash
Accounts Receivable
c. Miscellaneous Expense
Accounts Receivable
d. No adjusting entry is necessary.

Ans: A, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

127. Nolan Company had checks outstanding totaling $14,400 on its June bank reconciliation. In July, Nolan Company issued checks totaling $103,800. The July bank statement shows that $64,800 in checks cleared the bank in July. A check from one of Nolan Companys customers in the amount of $800 was also returned marked NSF. The amount of outstanding checks on Nolan Companys July bank reconciliation should be
a. $39,000.
b. $53,400.
c. $52,600.
d. $24,600.

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

128. Each of the following items affect the cash balance per books except
a. bank service charges.
b. notes collected by the bank.
c. NSF checks.
d. outstanding checks.

Ans: D, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

129. Heath Company gathered the following reconciling information in preparing its July bank reconciliation:
Cash balance per books, 7/31 7,500
Deposits in transit 150
Notes receivable and interest collected by bank 850
Bank charge for check printing 20
Outstanding checks 2,000
NSF check 170
The adjusted cash balance per books on July 31 is
a. 8,160.
b. 8,010.
c. 6,310.
d. 6,460.

Ans: A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

130. Wynn Company developed the following reconciling information in preparing its September bank reconciliation:
Cash balance per bank statement, 9/30 $18,000
Note receivable collected by bank 8,000
Outstanding checks 12,000
Deposits in transit 6,000
Bank service charge 100
NSF check 1,600
Determine the cash balance per books (before adjustments) for Wynn Company.
a. $13,700.
b. $24,000.
c. $5,700.
d. $20,000.

Ans: C, LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

131. Bank errors
a. occur because of time lags.
b. must be corrected by debits.
c. are infrequent in occurrence.
d. are corrected by making an adjusting entry on the depositors books.

Ans: C, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

132. An adjusting entry is not required for
a. outstanding checks.
b. collection of a note by the bank.
c. NSF checks.
d. bank service charges.

Ans: A, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

133. Kline Company had checks outstanding totaling $19,200 on its May bank reconciliation. In June, Kline Company issued checks totaling $119,700. The July bank statement shows that $89,100 in checks cleared the bank in July. A check from one of Kline Companys customers in the amount of $900 was also returned marked NSF. The amount of outstanding checks on Kline Companys July bank reconciliation should be
a. $58,800.
b. $30,600.
c. $49,800.
d. $10,400.

Ans: C, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

134. Quayle Company gathered the following reconciling information in preparing its August bank reconciliation:
Cash balance per books, 8/31 $8,500
Deposits in transit 300
Notes receivable and interest collected by bank 1,700
Bank charge for check printing 40
Outstanding checks 4,000
NSF check 340
The adjusted cash balance per books on August 31 is
a. $9,820.
b. $9,520.
c. $6,120.
d. $6,420.

Ans: A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

135. Fairly Company gathered the following reconciling information in preparing its April bank reconciliation:
Cash balance per books, 4/30 $4,900
Deposits in transit 600
Notes receivable and interest collected by bank 1,480
Bank charge for check printing 50
Outstanding checks 3,000
NSF check 280
The adjusted cash balance per books on April 30 is
a. $6,650.
b. $6,380.
c. $6,050.
d. $6,610.

Ans: C, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

136. Jeter Company developed the following reconciling information in preparing its September bank reconciliation:
Cash balance per bank statement, 9/30 $13,400
Note receivable collected by bank 8,400
Outstanding checks 12,600
Deposits in transit 6,300
Bank service charge 105
NSF check 1,680
Using the above information, determine the cash balance per books (before adjustments) for the Jeter Company.
a. $11,615
b. $19,700
c. $485
d. $21,000

Ans: C, LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

137. In the month of November, Coler Company wrote checks in the amount of $27,750. In December, checks in the amount of $37,974 were written. In November, $25,404 of these checks were presented to the bank for payment, and $32,649 were presented in December. What is the amount of outstanding checks at the end of November?
a. $5,325
b. $2,346
c. $7,671
d. $10,650

Ans: B, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

138. In the month of November, Coler Company wrote checks in the amount of $27,750. In December, checks in the amount of $37,974 were written. In November, $25,404 of these checks were presented to the bank for payment, and $32,649 were presented in December. What is the amount of outstanding checks at the end of December?
a. $5,325
b. $2,346
c. $7,671
d. $10,650

Ans: C, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

139. At April 30, Mareska Company has the following bank information: cash balance per bank 6,100; outstanding checks 280; deposits in transit 550; credit memo for interest 10; bank service charge 20. What is Mareskas adjusted cash balance on April 30?
a. 6,360
b. 6,380
c. 5,830
d. 6,370

Ans: D, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

140. At June 30, Mareska Company has the following bank information: cash balance per bank 7,800; outstanding checks 560; deposits in transit 1,100; credit memo for interest 20; bank service charge 40. What is Mareskas adjusted cash balance on June 30?
a. 8,320
b. 8,360
c. 7,260
d. 8,340

Ans: D, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

141. Rainey Company wrote checks totaling $17,080 during October and $18,650 during November. $16,240 of these checks cleared the bank in October, and $18,220 cleared the bank in November. What was the amount of outstanding checks on November 30?
a. $1,270
b. $230
c. $610
d. $1,980

Ans: A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

142. Tayler Company wrote checks totaling $34,160 during October and $37,300 during November. $32,480 of these checks cleared the bank in October, and $36,440 cleared the bank in November. What was the amount of outstanding checks on November 30?
a. $2,540
b. $460
c. $1,220
d. $3,960

Ans: A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

143. Osborn Company assembled the following information in completing its March bank reconciliation: balance per bank $11,460; outstanding checks $2,325; deposits in transit $3,750; NSF check $240; bank service charge $75; cash balance per books $13,200. As a result of this reconciliation, Osborn will
a. reduce its cash account by $1,425.
b. reduce its cash account by $75.
c. increase its cash account by $165.
d. reduce its cash account by $315.

Ans: D, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

144. Tavarez Company assembled the following information in completing its July bank reconciliation: balance per bank $22,920; outstanding checks $4,650; deposits in transit $7,500; NSF check $480; ban

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