ACCT-2110 Final

cash controls

the authority to collect, hold, and pay cash must be clearly assigned to specific individuals. Whenever feasible, cash-handling activities and cash record-keeping activities should be assigned to different individuals

overdraft charges

fees for taking more money out of account than there is available money (-)

cash equivalents

all highly liquid investments with an original maturity of 3 months or less at date of inception

service charges

bank charges not known until statement runs (-)

Each of the following items is considered a cash equivalent except: a) a 30-day certificate of deposit b) a 60-day corporate commercial paper c) a 180-day note issued by a local government d) a 75-day US Treasury bill

c) a 180-day note issued by a local government

When a corporation decides to pay a cash dividend, which of the following is an important consideration? a) the book value of the corporation's stock b) the number of authorized shares of the corporation's stock c) the balances in the corporation's cash and retained earnings accounts d) the balance of additional paid-in capital on the corporation's stock accounts

c) the balances in the corporation's cash and retained earnings accounts

NSF checks

checks given to the company that were no good on the other person's behalf (-)

outstanding checks

checks the company has written not yet presented to the bank for payment (-)

Which of the following is not considered to be a cash equivalent? a) U.S. Treasury bills with an original maturity of 6 months b) a money market account with a bank c) corporate commercial paper due in 60 days after purchase d) a certificate of deposit with a term of 75 days when acquired

a) U.S. Treasury bills with an original maturity of 6 months

Which of the following statements best describes the term "outstanding check" from a company's point of view? a) a check written by a customer to the company but it has not yet been presented to the bank for payment b) a check written by the company and presented to the bank for payment c) a check written by a customer to the company, and the check has been presented to the bank for payment d) a check written by the company but not yet presented to the bank for payment

a) a check written by a customer to the company but it has not yet been presented to the bank for payment

Allowing only certain employees to order goods and services on behalf of the company is an example of what internal control activity? a) clearly defined authority and responsibility b) safeguarding of assets and records c) segregation of duties d) checks on recorded amounts

a) clearly defined authority and responsibility

Issued shares represent the: a) number of shares that the corporation has sold b) number of shares that are currently held by stockholders c) maximum number of shares that can be sold by the corporation d) number of previously issued shares that have been repurchased by the corporation

a) number of shares that the corporation has sold

While preparing a bank reconciliation, which of the following items would be subtracted from the balance per the company records? a) outstanding checks b) deposits in transit c) interest earned on the bank account d) bank service charges

a) outstanding checks

Effective cash management and internal control practices include all of the following except: a) the practice of using surplus cash for the purchase of bonds or other long-term investments b) the practice of keeping inventory levels low c) the preparation of monthly bank reconciliations d) the use of a petty cash fund

a) the practice of using surplus cash for the purchase of bonds or other long-term investments

A physical count of inventory is required even though the company uses the perpetual inventory system. This is an example of which of the following internal control activities? a) safeguarding of assets and records b) checks on recorded amounts c) clearly defined authority and responsibility d) segregation of duties

b) checks on recorded amounts

Internal control systems provide assurance in each of the following areas except: a) effectiveness and efficiency of the company's operation b) consolidation of departments within the accounting function c) reliability of financial reporting d) compliance with applicable laws and regulations

b) consolidation of departments within the accounting function

Which of the following statements is true pertaining to participating preferred stock? a) there is a legal requirement for a corporation to declare a regular annual dividend b) it includes the right to share in dividends in excess of the regular annual dividend c) it includes the right to participate in management decisions through voting privileges d) its issuance provides no flexibility to the issuing company because its terms always mandate a regular annual dividend

b) it includes the right to share in dividends in excess of the regular annual dividend

A check written on the company's account in May and paid by the bank is returned with the bank statement for May. Identify the treatment of this check at the time of reconciliation: a) it would be added to the balance as per bank statement b) it would not be included on the reconciliation statement c) it would be added to balance as per company's books d) it would be subtracted from the balance as per company's books

b) it would not be included on the reconciliation statement

An addition to employee compensation whereby the corporation provides a right to purchase stock at a set price is called: a) treasury stock b) the conversion privilege c) a stock option d) a call option

c) a stock option

Error corrections that involve restatement of prior period income must be reported: a) in the "unrestricted retained earnings" section on the balance sheet, with footnote disclosure to describe the appropriation b) in a separate account within the equity section of the balance sheet c) as a prior period adjustment on the statement of changes in retained earnings d) only within the footnotes accompanying the financial statements

c) as a prior period adjustment on the statement of changes in retained earnings

Which internal control activity is followed when the work of one department is inspected by another department? a) segregation of duties b) safeguarding of assets and records c) checks on recorded amounts d) clearly defined authority and responsibility

c) checks on recorded amounts

Authorized stock represents the: a) number of previously issued shares that have been repurchased by the corporation b) number of shares that the corporation has sold c) maximum number of shares that can be issued for each class of stock d) number of shares that are currently held by stockholders

c) maximum number of shares that can be issued for each class of stock

Common stock usually has all of the following features except: a) voting rights b) the preemptive right c) the conversion privilege d) the residual claim to net assets

c) the conversion privilege

Which of the following activities would lead to violation of the internal control process? a) monthly statements are mailed to customers to indicate the current balance due b) the clerk in the accounting department records both purchases and payments of invoices c) the receiving department compares the quantity of merchandise received with the quantity ordered d) all supporting documents attached to an invoice are cancelled when the check is signed

d) all supporting documents attached to an invoice are cancelled when the check is signed

Which of the following documents is used as a control measure to check cash receipts? a) outstanding checks b) bank debit memos c) cancelled checks d) bank deposit slips

d) bank deposit slips

Which of the following statements is true with regard to 7% cumulative participating preferred stock? a) stockholders who hold this type of stock are guaranteed a dividend each year b) if dividends are not declared, they accumulate, and a liability must be reported on the balance sheet for any amount in arrears that is owed to the preferred stockholders c) the issue price of this stock is reported in the preferred stock account on the balance sheet d) if the corporation pays a per share dividend in excess of 7% of the preferred stock's par value and there are no dividends in arrears, the preferred shares will receive a share of the amounts available for distribution as dividends to other classes of stock

d) if the corporation pays a per share dividend in excess of 7% of the preferred stock's par value and there are no dividends in arrears, the preferred shares will receive a share of the amounts available for distribution as dividends to other classes of stock

When a corporation pays a previously declared cash dividend, which of the following is true? a) stockholders' equity decreases b) cash increases c) no entry is necessary d) liabilities decrease

d) liabilities decrease

Dividends in arrears are required to be reported in: a) a liability account b) a stockholders' equity account c) a contra-equity account d) the footnotes accompanying the financial statements

d) the footnotes accompanying the financial statements

Which of the following items is included as part of comprehensive income but not as part of net income? a) income tax expense b) gains or losses on the sale of equipment c) gains or losses on the sale of investments d) unrealized holding gains or losses

d) unrealized holding gains or losses

debit and credit memos

deposits that the bank collected for the company and the company didn't capture (+/-)

deposits in transit

deposits that the company made but didn't make it to the bank statement in time (+)

The operating cycle is the elapsed time between the a) purchase of goods or services and the ultimate collection of cash from customers related to the sale of those goods b) purchase of goods from suppliers and the performance of the related service for customers c) sale of goods or services to customers and the payment to suppliers for those goods d) sale of goods and the delivery of those goods to customers

a) purchase of goods or services and the ultimate collection of cash from customers related to the sale of those goods

All of the following would be considered internal control weaknesses except: a) the practice of shipping goods to customers right before year-end even though the customers had not ordered them b) it takes 2 days to get a check written because of the approvals required c) no physical inventory is ever taken to confirm the amount of inventory recorded in the accounting records d) the person who opens the mall also makes the journal entry to record any customer payments received in the mail

b) it takes 2 days to get a check written because of the approvals required

Which of the following is an example of a credit memo? a) notice of a bank service charge b) notice of interest earned on a checking account c) a company's transposition error in the recording of a deposit d) outstanding checks

b) notice of interest earned on a checking account

Which of the following is one of the elements of stockholders' equity? a) net income b) retained earnings c) dividends payable d) loss on the sale of equipment

b) retained earnings

When a corporation issues a stock dividend, which of the following is true? a) cash decreases b) total stockholders' equity remains the same c) retained earnings is increased d) total stockholders' equity decreases

b) total stockholders' equity remains the same

Which one of the following statements regarding internal control is false? a) it is not possible to design a system of internal controls that is foolproof b) internal control system should be designed to ensure the reliability of financial as well as non-financial reporting c) separation of duties is the easiest control activity to implement in small companies d) a well-designed system of internal controls should be the goal of every organization whether for-profit or not-for-profit

c) separation of duties is the easiest control activity to implement in small companies

The items listed below were identified while preparing a bank reconciliation for the company's checking account as of March 31. Cash balance according to the general ledger ? Bank statement balance $18,500 Outstanding checks 2,700 Customer's bounced check 350 Bank service charges 100 Deposits in transit 1,000 Interest earned on the checking account 60 How will the customer's bounced checks be handled on a bank reconciliation? a) add to the bank statement balance b) add to the balance from the company records c) subtract from the balance from the company records d) subtract from the bank statement balance

c) subtract from the balance from the company records

How are cash equivalents reported or disclosed in the financial statements? a) they are only reported on the statement of cash flows b) they are included with short-term investments as a current asset on the balance sheet c) they are included with cash as a current asset on the balance sheet d) they are only disclosed in the notes to the financial statements

c) they are included with cash as a current asset on the balance sheet