ACG2021 Ch 7 Graded Quiz
When preparing a bank reconciliation, how are deposits in transit handled?
Added to the bank balance Solution: deposits in transit are deposits made by the company that have not yet been recorded by the bank. They need to be added to the bank balance
The use of prenumbered checks is an example of
documentation procedures Solution: companies should establish procedures for documents. Documentation procedures include the use of renumbered documents and accounting for all documents
Which of the following is the correct adjusting journal entry for the bank account holder when notified of a bank debit memorandum for a monthly service charge of $30?
miscellaneous Expense 30 cash 30 Solution: To depositors or account holders, account balances are assets but to the bank, they are liabilities because banks owe their depositors these amounts. Decreases in bank accounts, such as charging depositors bank service charges, reduce these liabilities. Bank often refer to these declines in terms of debit memoranda. The journal entry that the depositor records, when charged a bank service charge, would include a reduction to cash (debit cash) and increase to an expense account (miscellaneous expense)
Kappa Company gathered the following reconciling information in preparing its Sept. bank reconciliation: Cash balance per books, Sep. 30 $10,400 Deposits in transit $900 Outstanding checks $2000 NSF check $280 Notes receivable and interest collected by bank $480 Bank charge for check printing $50 The adjusted cash balance per books on Sep. 30 is
$10,550 Solution: Balance per books on Sep 30 $10,400 Add: Note collected by the bank $480 Less: Bank service charge $50 Less: Customer's NSF check $280 Adjusted cash balance per books on Sep 30 $10,550
At April 30, Key company has the following information: Cash balance per bank $10500 outstanding checks $550 deposits in transit $1375 notes receivable collected by bank $500 bank service charges $50 NSF check $200 What is the company's adjusted cash balance at the end of the month?
$11,325 Solution: cash per bank 10,500 Add: deposits in transit $1375 subtract: outstanding checks $550 =$11,325
At April 30, Kessler Company has the following bank information: Cash balance per bank $11,500 Outstanding checks $700 Deposits in transit $1375 Credit memo for interest $25 Bank service charge $50 What is Kessler's adjusted was balance on April 30
$12,175 Solution: cash per bank $11,500 Add: Deposits in transit $1375 Less: Outstanding checks $700 Adjusted cash balance: $12,175
Jones Company collected the following information to prepare its July bank reconciliation: Cash balance per books, July 31, $7000 Deposits in transit $600 Notes receivable with interest collected by bank $300 Bank service charges $45 Outstanding checks $330 NSF check $225 How much is the adjusted cash balance per books on July 31?
$7030 Solution: The book side of the cash reconciliation begins with $7000 to which amounts collected by the bank are added (note receivable $300) and amounts the bank deducted from the account are subtracted (bank service charge of $45 and NSF check of $225) to arrive at the adjusted cash balance per books of $7030. Outstanding check and deposits in transit affect the bank side of the reconciliation
Chester Company collected the following information to prepare its September bank reconciliation: Cash balance per books, Sept. 30, $75,750 Note receivable of $4200 plus $300 of interest collected, $4,500 outstanding checks $14,500 Deposits in transit $10,250 bank service charges $50 NSF check $500 The company erroneously recorded a $320 cash payment on its books as a $230 cash payment. Also, the bank erroneously subtracted $750 from the company's checking account. The bank should have subtracted the money to a different customer's account. How much is the adjusted cash balance per books on Sept. 30?
$79,610 Solution: Balance per books on Sep. 30 $75,750 Add: note collected by the bank including interest $4500 Subtract: Bank service charge $50 subtract: NSF check $500 Subtract: book error (see note below) $90 Adjusted cash balance per books, $79.610 Note: the company paid $320 but subtracted only $230 from its books. The company needs to subtract an additional $90
Chester Company collected the following information to prepare its December bank reconciliation: Cash balance per books, December 31, $82,600 Notes receivable of $1,750 plus $250 of interest collected $2000 Outstanding checks $4900 Deposits in transit $2500 Bank service charges $50 NSF check $650 The company erroneously recorded a $1000 cash payment on its books as a $100 cash payment. Also, the bank erroneously deducted $300 from the company's checking account. The bank should have taken the money from a different customer's account. How much is the adjusted cash balance per books on Dec 31?
$83,000 Solution: Balance per books on Dec 31 $82,600 Add: Note collected by the bank including interest $2000 Less: bank service charge $50 Less: NSF check $650 Less book error (the company paid $1000 but subtracted only $100 on its books. It needs to subtract the remaining $900) $900 Adjusted cash balance per books: $83,000
A check correctly written by Speedy Delivery Company for $1304 was incorrectly recorded on its books as $1403. As a result, the company's next monthly bank reconciliation should include
$99 added to the cash balance per books Solution: the company deducted too much (1403-1304=99) from its cash balance. Correcting the error requires adding back the $99
A check correctly written by Speedy Delivery Company for $1403 was incorrectly recorded on its books as $1304. As a result, the company's next monthly bank reconciliation should include
$99 deducted from the cash balance per books Solution: the company deducted too little (1403-1304 = 99) from its cash balance. Correcting the error requires deducting the $99
Which of the following is an effective internal control over cash disbursements?
-The use of pre-numbered checks -The storage of bank checks in a secure place -The separation of authorization of checks and the actual writing of the checks Solution: use of pre-numbered checks, safeguarding of blank checks, and separation o check authorization from preparation of checks are elements of an effective internal control principles over disbursements
Which of the following requires an adjusting entry on the company's books as the result of a bank reconciliation?
A bank service charge Solution: bank service charges are deductions made by the bank from the company's account that must be removed from the company's accounting records with an adjusting entry that credits Cash and debits Miscellaneous Expense or Bank Service Charge Expense Bank error are amounts for which the bank made an error. They are handled with correspondence with the bank. Upon resolution, the bank will issue a correction. No adjusting entry is needed
For which of the following errors should the appropriate amount be added to the cash balance per bank statement on a company's bank reconciliation
A check written by the company for $60 was incorrectly recorded by the bank as $600 Solution: Amounts added to the cash balance per bank statement include deposits in transit and bank errors that erroneously decreased the company's bank account balance. The bank decreased the company's balance by $600 when it should have decreased it by $60. Correcting this error requires adding $510 to the cash balance per bank statement
For which of the following error should the appropriate amount be added to the cash balance per books on a company's bank reconciliation?
A deposit of $1200 was incorrectly recorded by the company as a deposit of $120 Solution: amounts added to the cash balance per books include collections of notes, interest, and company errors that erroneously decreased the company cash account balance. The company increased the company's balance by $120 when it should have increased it by $1200. Correcting this error requires adding $1080 to the cash balance per books
For which of the following error should the appropriate amount be subtracted from the cash balance per books on a company's bank reconciliation?
A deposit of $890 was incorrectly recorded by the company as a deposit of $980 Solution: Amounts subtracted from the cash balance per books include bank service charges, NSF checks, and company error that erroneously increased the company's cash account balance. The company increased the company's balance by $980 when it should have increased it by $890. Correcting this error requires subtracting $90 from the cash balance per books
If a check is correctly written by East Company for $628 and is incorrectly recorded on East Company's books as $682, the appropriate treatment on the bank reconciliation would be to
Add $54 to the cash balance per books Solution: the company deducted too much from its cash balance. Correcting the error requires adding back the difference between the correct amount and the amount deducted
Which of the following was not a result of the Sarbanes-Oxley Act?
Companies must file financial statements with the Internal Revenue Service Solution: The Sarbanes-Oxley act requires all publicly traded US companies to maintain an adequate system of internal controls. Corporate executives and boards of directors must ensure that these controls are reliable and effective. Companies that fail to comply are subject to fines and company officers can be imprisoned. The Act does not address reporting to the IRS. In addition, this Act created the Public Company Accounting Oversight Board to establish auditing standards and regulate auditor activity
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?
Credit to Notes Receivable for $500 Solution: Cash will be debited for the $500 because cash is being increased (collected). Also, Notes Receivable will be credited for $500 because it is an asset that is being reduced. This transaction is merely an asset exchange of one asset for another
Which of the following will not require an adjusting entry on the company's books as a result of a bank reconciliation
Deposits in transit Solution: Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will be posted in the next accounting period. No adjusting entry is needed
Which of the following is the adjusting entry that Max Company would journalize when Max Company's bank statement indicates that the bank collected a $250 non-interest bearing note receivable from one of Max's customers on Max Company's behalf?
Increase the Cash account by $250 and decrease the Notes Receivable account by $250 Solution: The cash account increases and notes receivables decreases. This is the same transaction that would be recorded if a company directly receives a check in the mail from a customer
Which of the following is least likely to contribute to a company's internal control system?
Preparing an extensive marketing plan Solution: principles of internal control are the specific control activities used by a company to prevent fraud and other problems. Internal controls have several features examples include the segregation of duties, the documentation of procedures, the establishment of responsibility, human resource controls, physical controls, and independent internal verification
Which of the following is an element of the fraud triangle?
Rationalization Solution: the 3 components of the fraud triangle are opportunity, financial pressure, and rationalization. When these three occur, the possibility of fraud is high
Which of the following is not an effective internal control over cash disbursements?
Requiring personnel who authorize cash disbursements to work continuously without vacations Solution: requiring employees (including employees who disburse cash) to take periodic vacations is a cash disbursement control. Employees can hide certain forms of embezzlement if they are always in control of cash disbursements, but leaving for vacations often leads to scams, embezzlements, thefts, etc. being uncovered by the person temporarily filling in for the person on vacation
Ron Jones has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated?
Segregation of duties Solution: In segregation of duties, different individuals should be responsible for related activities such as physical control of assets and recording keeping regarding those assets
An accounts payable clerk also has access to the approved supplier master file which lists all of the company's suppliers from which the company makes its purchases. The control principle of
Segregation of duties is violated Solution: in segregation of duties, different individuals should be responsible for related activities such as authorization of making payments to vendors and writing checks to pay vendors
Which of the following statements is false with regards to internal controls?
Stockholders of publicly-traded companies can be imprisoned if their companies fail to comply with internal control rules Solution: The Sarbanes-Oxley Act (SOX) requires publicly-traded US corporations to maintain an adequate system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective. Independent auditors must attest to the adequacy of the internal control system. Companies that fail to comply are subject to fines and company officers can be imprisoned
Which of the following is not a good internal control procedure for cash?
The same individual counts the amount of cash received and records the amount of cash deposited Solution: good internal procedures for handling cash include preparing bank reconciliations, bonding of employees who handle cash, independent internal verification (surprise audits), segregate certain duties, establishing responsibilities.
Which one of the following is a physical control?
Time clocks are recording time worked Solution: physical controls relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records. Examples of physical control include time clocks for recording time worked, safes and vaults to store cash, locked warehouses for inventories, bank safety deposit boxes for important papers, television monitors and garment sensors to deter thieves
Which of the following is not a reason why an organization establishes a system for internal control?
To prevent a corporate take-over by a competitor Solution: 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
For which of the following error should the appropriate amount be added to the cash balance per books on a company's bank reconciliation?
a check written by the company for $470 was incorrectly recorded on the company's books as $740 Solution: amounts added to the cash balance per books include collections of notes, interest income, and company errors that erroneously decreased the company's cash account balance. The company decreased the company's balance by $740 when it should have decreased it by $470. Correcting this error requires adding $270 to the cash balance per bank statement.
A check correctly written by East Company for $628 is incorrectly recorded on East Company's books as $682, the appropriate treatment not he bank reconciliation would be to
add $54 to the cash balance per books Solution: the company deducted too much from its cash balance. Correcting the error requires adding back the difference between the correct amount and the amount deducted
The custodian of a company asset should
not have access to the accounting records for that asset Solution: the rationale for segregation of duties is that the work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee. In contrast, making one individual responsible for related activities increases the potential for errors and irregularities (fraud)
A check written by the company for $780 was incorrectly recorded by the bank as $870. In the bank reconciliation, this $90 error would be
added to the cash balance per bank statement Solution: Amounts added to the cash balance per bank statement include deposits in transit and bank error that erroneously decreased the bank account balance. The bank decreased the company's balance by $870 when it should have decreased it by $780. Correcting this error requires adding $90 to the cash balance per books
A check written by the company for $780 was incorrectly recorded on the bank as $870. In the bank reconciliation, this $90 error would be
added to the cash balance per bank statement Solution: amounts added to the cash balance per bank statement include deposits in transit and bank errors that erroneously decreased the bank account balance. The bank decreased the company's balance by $870 when it should have decreased it by $780. Correcting this error requires adjusting $90 to the cash balance per books
A deposit of $530 was incorrectly recorded by the company on its books as a deposit of $350. In the bank reconciliation, this $180 error would be
added to the cash balance per books Solution: amounts added to the cash balance per books include collections of notes, interest income, and company errors that erroneously decreased the bank account balance. The company increased its cash balance per books by $350 when it should have increased it by $530. Correcting this error requires adding $180 to the cash balance per books
Which one of the following would not result in a bank issuing a debit memorandum?
collection of a note receivable Solution: because the bank considers the depositor's account balance to be a liability, a credit memo from a bank indicates that the bank increased the account balance (the bank credited its liability owed to the customer) and a debit memo causes a decrease. Collection of a note receivable increases the amount owed to the depositor; it increases the liability of the bank and is accomplished with a credit memo
Which one of the following is a primary component of an internal control system?
control environment Solution: the 5 primary components of an internal control system are control environment, risk assessment, control activities, information and communication, and monitoring
In preparing a bank reconciliation, outstanding checks are
deducted form the balance per bank Solution: a bank reconciliation reconciles the cash balance per bank statement to the cash balance per books. Certain items are added o the bank statement balance (deposits in transit) and others are subtracted (outstanding checks). Likewise, certain items are added to the cash balance per books (collection of notes receivable and interest earned) and other items are subtracted (NSF checks and bank service charges)
A NSF check should appear in which section of the bank reconciliation?
deduction from the balance per books Solution: a bank reconciliation reconciles the cash balance per bank statement to the cash balance per books. Certain items are added to the bank statement balance (deposits in transit) and others are subtracted (outstanding checks). Likewise, certain items are added to the cash balance per books (collection of notes receivable and interest earned) and other items are subtracted (NSF checks and bank service charges)
Which of the following statements is false with regards to record-keeping for bank reconciliations?
deposits in transit do require a journal-entry once the bank reconciliation is completed Solution: NSF checks are deductions made by the bank from the company's account that must be removed from the company's accounting records with an adjusting entry that credits Cash and debits Accounts Receivable Outstanding checks are checks written by the company that have already been recorded in the accounting records but have not yet been posted on the bank statement. They will clear the bank in future periods. No adjusting entry is needed. Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will clear in the future periods. No adjusting entry is needed. Bank errors are amounts for which the bank made an error. They are handled with correspondence with the bank. Upon resolution, the bank will issue a correction. No adjusting entry is needed
For which item below might a bank issue a credit memorandum to a depositor's account?
interest earned Solution: because the bank considers the depositor's account balance to be a liability, a credit memo from a bank indicates that the bank increased the account balance (the bank credited its liability owed to the customer) and a debit memo causes a decrease. Interest earned increases the amount owed to the depositor; it increases liability of the bank and is accomplished with a credit memo
Which one of the following statements is correct
internal auditors are company employees who evaluate the effectiveness of the company's system of internal control on a continuous bases Solution: Internal auditors are employees of the company and continuously evaluate the effectiveness of the company's internal control systems. External auditors evaluate the internal controls of a company during the audit cycle. This cycle is not continuous. The public accountants evaluate the internal controls of a company during the audit cycle. This cycle is not continuous. Companies of all sizes need a system of internal control and internal auditors.
Certain computer programs are used to limit unauthorized access to certain files. This is an example of
physical controls
Which of the following statements is false with regards to internal controls?
publicly-traded companies must eliminate redundant internal controls
Schwinn Company assembled the following information in completing its March bank reconciliation: Cash balance per bank $15,280 Cash balance per books $17,600 Outstanding checks $3100 Deposits in transit $5000 NSF check $320 Bank service charge $100 The adjusting entry that the company will journalize as a result of this reconciliation will
reduce its cash account by $420 Solution: Cash per books $17600 Less: NSF check $320 Less: Bank service charge $100 Adjusted cash balance: $17,180 Total reduction in cash per book=$320+$100 = $420
An office supply store has cashier who is also the accounts receivable clerk for the company. Which internal control principle is violated?
segregation of duties Solution: the cashier maintaining the books violates segregation of duties because she also receives, records, and deposits cash. Rotation of employees would move employees between positions. While the cashier's duties may be well defined and only one person is responsible for the receipt of cash, the cashier has access to the cash and the record keeping. The cashier may be properly documenting the events and utilizing the proper forms
A deposit of $270 was incorrectly recorded by the company as a deposit of $720. In the bank reconciliation, this $450 error would be
subtracted from the cash balance per books Solution: the company deposited $270 but it recorded the deposit as if it were $270. That overstates its cash balance. Correcting this error requires subtracting $450 from the cash balance per books
If employees are bonded
they have been insured against misappropriation of assets Solution: bonding involves obtaining insurance protection against theft by employees. It means that they have been insured against misappropriation of assets
A bank reconciliation should be prepared
to explain any difference between the depositor's balance per books and the balance per bank Solution: bank reconciliation should be prepared periodically to explain any difference between the depositor's balance per books with the balance per bank
Why should a bank reconciliation be prepared?
to identify errors by either the bank or the company in recording transactions Solution: Bank reconciliations should be prepared periodically to explain any difference between the depositor's balance per books with the balance per bank. The bank reconciliation also helps the company identify recording errors made either by the bank or the company
Internal control consists of all of the methods and measures adopted within an organization to do all of the following except
to maximize revenues, to attract new investors Solution: internal control consist of all of the methods and measures adopted within an organization to safeguard assets, enhance the reliability of account records, increase efficiency of operations, and ensure compliance with laws and regulations