Bonus Quiz-Chapters 4 & 10

What is the primary reason for a stock split

X to increase the capital stock of the corporation

Which internal control activity is violated when the cashier at a cash register in a retail store also records the daily receipts in a journal?

segregation of duties

When a corporation declares a cash dividend, what happens to stockholders equity?

stockholders' equity decreases

Which of the following statements is true with regard to equity capital?

The number of shares actually in the hands of stockholders is called outstanding shares.

A growing corporation had $180,000 of its $30 par common stock issued before its recent 3-for-1 stock split. The market price of the stock was $120 per share before the split. Which of the following is true as a result of the split?

The par value of the stock decreased to $10 per share.

Which of the following statement is true regarding a corporation's purchase of treasury stock?

the cost of treasury stock is a reduction in stockholders' equity

Which of the following is a transposition error?

writing $89 as $98

Dance Town Academy 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$18,500Outstanding checks2,700Customer's bounced check350Bank service charges100Deposits in transit1,000Interest earned on the checking account60 How will the customer's bounced checks be handled on a bank reconciliation?

subtract from the balance from the company records

Which of the following is true for a corporation that issues 1,000 shares of $2 par common stock at $5 per share?

total stockholders' equity will increase by $5,000

What will be the increase in the additional paid-in capital-common stock account if a corporation issues 20,000 shares of $1.00 par common stock for $6 per share?

$100,000

The statement of stockholders' equity shows an $8,000 increase in the common stock account, a $22,000 increase in the additional paid-in capital—common stock account, and a $100,000 increase in retained earnings. If the common stock has a par value of $3 and dividends of $10,000 were declared and paid during the year, what is the amount of net income for the year?

$110,000

If a corporation declares a 2-for-1 stock split, which of the following is true?

A stockholder who previously held 100 shares will have 200 shares after the split.

A customer's check for $25 that had been deposited into the company's checking account the previous month was returned stamped 'NSF' by the bank. Which of the following journal entries is required in the company's books?

Account Receivable25 Cash25

Suppose a corporation issues 5,000 shares of $1 par common stock for $30 per share. In addition to the increase in cash, what effect does this transaction have on the accounting equation?

Additional paid-in capital-common stock increases by $145,000.

The amount of cash in the cash register from sales totals $534. The amount for sales recorded on the cash register tape was $530. Which journal entry is required to take care of this discrepancy?

Cash in Bank 534 Sales 530 Cash Over and Short 4

Dance Town Academy 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$18,500Outstanding checks2,700Customer's bounced check350Bank service charges100Deposits in transit1,000Interest earned on the checking account60 How will the bank services charges be handled on a bank reconciliation?

subtract from the balance from the company records

If a company erroneously records a $50 check received from a customer as $500 in its records, which of the following must occur when reconciling its bank statement?

the company must decrease the balance per its records by $450

A company's control environment is primarily influenced by all of the following except

the experiential background of internal auditors.

On January 1, 2020, a company issued 10,000 shares of 10%, $10 par value cumulative preferred stock. No dividends were declared in 2020 or 2021. In 2022, the company declared a dividend of $200,000. How much of the 2022 dividend should be paid to common stockholders?

X $197,000

Treasury shares represent the

member of previously issued shares that have been repurchased by the corporation

Treasury shares represent the

number of previously issued shares that have been repurchased by the corporation.

Outstanding shares represent the

number of shares that are currently held by stockholders.

Issued shares represent the

number of shares that the corporation held by stockholders

Which of the assets listed below is considered the most liquid?

X Accounts receivable

While preparing a bank reconciliation, which of the following items would be subtracted from the balance per the company records?

X outstanding checks

Authorized stock represents the

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

Total stockholders' equity includes $50,000 of common stock with a stated value of $0.50 and 5,000 shares of treasury stock with a total cost of $25,000. How many total shares of common stock are outstanding?

95,000

Delco Construction The following items relate to the company's March bank reconciliation: Bank statement balance$29,600Unadjusted cash balance according to company records?Deposit in transit2,200Outstanding checks3,100Bank service charges200Interest earned on the bank account100Customer's NSF check returned by the bank300 What is the company's adjusted cash balance at March 31?

$28,700

If the balance on the bank statement does not equal the balance per the company's records, then it can be assumed that

there will be items reconciling the difference.

Landmark Company reported the following information in the stockholders' equity section of its December 31 balance sheet: 7% Cumulative, Nonparticipating Preferred Stock, $100 par, 500 shares authorized, issued, and outstanding, callable at par value$50,000Common Stock, $12 par, 100,000 shares authorized600,000Additional Paid-In Capital-Common Stock25,000Retained Earnings825,000 The company's total capital stock is

$675,000.

Landmark Company reported the following information in the stockholders' equity section of its December 31 balance sheet: 7% Cumulative, Nonparticipating Preferred Stock, $100 par, 500 shares authorized, issued, and outstanding, callable at par value$50,000Common Stock, $12 par, 100,000 shares authorized600,000Additional Paid-In Capital-Common Stock25,000Retained Earnings825,000 What is the number of shares of common stock issued and outstanding?

50,000

Which of the following statements is true with regard to 7% cumulative participating preferred stock?

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.

Which of the following statements is true pertaining to participating preferred stock?

It includes the right to share in dividends in excess of the regular annual dividend.

A check returned by a bank because the issuer's account balance could not cover the check is called a(n)

NSF check.

Delco Construction The following items relate to the company's March bank reconciliation: Bank statement balance$29,600Unadjusted cash balance according to company records?Deposit in transit2,200Outstanding checks3,100Bank service charges200Interest earned on the bank account100Customer's NSF check returned by the bank300 What is net amount of the adjustments to the company's cash balance as a result of the bank reconciliation?

X a $400 increase

Lanier Tech was incorporated as a new business on January 1. The company is authorized to issue 50,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par, cumulative, participating preferred stock. On January 1, the company issued 8,000 shares of the common stock for $15 per share and 2,000 shares of the preferred stock for $30 per share. Net income for the year ended December 31 was $375,000. What is the amount of the company's total capital stock at December 31?

$180,000

Dance Town Academy 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$18,500Outstanding checks2,700Customer's bounced check350Bank service charges100Deposits in transit1,000Interest earned on the checking account60 How will the deposits in transit be handled in a bank reconciliation?

add to the bank statement balance

The internal audit function of publicly traded corporations is required to report to the

audit committee

The internal audit function of publicly traded corporations is required to report to the

audit committee.

Each of the following documents is used in the reconciliation of cash disbursements except

bank credit memos.

Which of the following documents is used as a control measure to check cash receipts?

bank deposits slips

Checks presented for payment and paid by the bank are known as

cancelled checks.

When a corporation issues a small stock dividend, which of the following is false?

cash decreases

Once the bank reconciliation is completed, an adjusting entry in the company's books needs to be made for each of the following items except _____.

outstanding checks

Which of the following is a reconciling item on the bank side of a bank reconciliation?

outstanding checks only

Which of the following is not a sound internal control procedure for cash disbursements?

paying suppliers with petty cash to expedite the payment process

Strategic risk assessment is primarily concerned with

possible external threats to the company's success in accomplishing its objectives.

Dreammaker Kitchens The following information relates to the company's November bank reconciliation: Bank statement balance$10,700Unadjusted cash balance from the company's records?Deposit in transit2,100Outstanding checks1,200Bank service charges300Interest earned on the bank account100Customer's NSF check returned by the bank400 What is the company's adjusted cash balance on November 30?

X $12,200

Identify the activity that would contribute to strengthening the internal control process.

cash register tapes are recorded daily by an employee from the accounting department

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?

checks on recorded amounts

A corporation reported net income of $60,000, declared and paid cash dividends of $80,000, and issued 3,000 shares of $2 par common stock at $15 per share during the year. What total effects would these transactions have on the following stockholders' equity accounts?

decrease (in retained earnings) increase (in common stock)

While preparing a bank reconciliation, which of the following items would be added to the bank statement balance?

deposits in transit

Many stockholders choose to invest in preferred stock because

dividends are distributed to preferred stockholders before common stockholders.

On January 15, a corporation paid a cash dividend that had been declared prior to the end of its previous fiscal year. The entry to pay the dividends includes a debit to

dividends payable and a credit to cash.

Which of the following items would be added to the company's cash balance on a bank reconciliation?

interest earned on the bank account

All of the following would be considered internal control weaknesses except

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

When a corporation pays a previously declared cash dividend, what happens to liabilities?

liabilities decrease

Allowing only certain employees to order goods and services on behalf of the company is an example of what internal control activity?

X segregation of duties

The only essential element of internal control from the following is

procedures for proper authorization of transactions

Which internal control activity is followed when inventory storage areas are secured with limited access?

safeguarding of assets and records

The control activity "segregation of duties" is most effective in

X increasing cost of sales

After a corporation declares a cash dividend, what takes place on the date of record?

X stockholders' equity decreases X cash decreases

When a corporation decides to pay a cash dividend, which of the following is an important consideration?

X the book value of the corporation's stock

When petty cash balance is replenished and the expenses are recognized, _____.

X the petty cash balance decreases

If a corporation declares a 2-for-1 stock split, which of the following is true?

X the stockholders will have a higher proportionate ownership share after the split

Lake Lanier Grill, Inc. The stockholders' equity section of the December 31, prior year, balance sheet is provided below: Common Stock, $3 par, 2,000 shares issued and outstanding$60,000Additional Paid-In Capital-Common Stock1,000Retained Earnings5,400 Total Stockholders' Equity$12,400 Assume that all 2,000 shares of stock were issued as of December 31, prior year, for $3.50 per share. On March 1, current year, the company reacquired 1,000 shares of its common stock for $4.50 per share. If all of the 1,000 shares that Lake Lanier Grill repurchased on March 1, current year, were later reissued for $4.00 per share, the journal entry to record this transaction includes a debit to what account and for what amount?

X $2,000 to treasury stock

Lasik Vision Inc. began business on June 1, prior year. The corporate charter authorized issuance of 1,000 shares of no-par common stock and 4,000 shares of $6 par, 6% cumulative preferred stock. As of the beginning of the current year, 200 shares of common stock had been issued and none of the preferred stock had been issued. If the company issues 400 shares of common stock on March 1, current year, for $10 per share, the journal entry would include a

X $2,400 credit to common stock

Lanthier's Heating & Air company began business on June 1. The articles of incorporation authorize issuance of 10,000 shares of $2 par common stock and 5,000 shares of $8 par, 6% cumulative preferred stock. What is the maximum amount that can be reported on the balance sheet for common stock and preferred stock, respectively, if all of the stock is issued?

X $20,000$2,400 X $10,000$40,000

Lake Lanier Grill, Inc. The stockholders' equity section of the December 31, prior year, balance sheet is provided below: Common Stock, $3 par, 2,000 shares issued and outstanding$60,000Additional Paid-In Capital-Common Stock1,000Retained Earnings5,400 Total Stockholders' Equity$12,400 Assume that all 2,000 shares of stock were issued as of December 31, prior year, for $3.50 per share. On March 1, current year, the company reacquired 1,000 shares of its common stock for $4.50 per share. The journal entry to record the transaction on March 1, current year, includes a credit to what account and for what amount?

X $4,500 to treasury stock X $3,000 to additional paid-in capital-treasury stock transactions

Designs on You The following information relates to the company's May bank reconciliation: Bank statement balance$5,000Unadjusted cash balance from the company records?Deposit in transit1,000Outstanding checks500Bank service charges50Interest earned on the bank account10Customer's NSF check returned by the bank25 In addition, a check issued was recorded in the accounting records as $1,200 but the correct amount as recorded by the bank was only $1,000. What is the unadjusted cash balance according to the company's records on May 31?

X 5500

Ladder Distributors The stockholders' equity section of the December 31, prior year, balance sheet is provided below: Common Stock, $30 par, 20,000 shares issued and outstanding$600,000Additional Paid-In Capital-Common Stock240,000Retained Earnings700,000 Total Stockholders' Equity$1,540,000 Assume that all of the 20,000 shares of stock that were issued as of December 31, prior year, were issued for $42 per share. On March 1, current year, the company reacquired 4,000 shares of its common stock for $50 per share. Suppose the company reissued 1,000 shares of its treasury stock on June 1, current year, for $44 each. Which of the following is true regarding the entry required to record this transaction?

X A debit to treasury stock is required for $44,000. X A debt to additional paid in capital-treasury stock is required for $6000

During the bank reconciliation process, an accountant identified an error. A check written for $20 to pay a supplier for goods purchased on credit was erroneously recorded in the company's records as $200. Which of the following entries would correct this error?

X Cash180 Accounts Receivable180

Which one of the following statements is true?

X Good cash management practice dictates that large cash balances should be maintained.

Which of the following activities would lead to violation of the internal control process?

X The clerk in the accounting department records both purchases and payments of invoices.

Which of the following statements best describes the term "outstanding check" from a company's point of view?

X a check written by a customer to the company, and the check has been presented to the bank for payment

A petty cash custodian maintains a $250 petty cash fund. At the end of each month, the custodian tallies the records of the petty cash transactions and presents them for reimbursement. April 4U.S. Post Office (postage)$ 48April 21Callabaugh Supply (office supplies)146April 25Speedy Delivery (package delivery)35 Which of the following entries is necessary for recording the replenishment of the fund?

X a. Postage Expense48Office Supplies Expense146Delivery Expense35Cash Over and Short21 Petty Cash Fund250

Par value represents the

X amount for which treasury shares may be reissued. X amount for which any treasury shares have been acquired by the corporation.

Each of the following documents is used in the reconciliation of cash receipts except

X bank deposit slips. X NSF checks

Dance Town Academy 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$18,500Outstanding checks2,700Customer's bounced check350Bank service charges100Deposits in transit1,000Interest earned on the checking account60 Determine the amount of the company's adjusted cash balance.

X cannot be determined

Error corrections that involve restatement of prior period income must be reported

X in a separate account within the equity section of the balance sheet.

Which of the following is not a generally recognized internal control activity?

X internal review of business transactions by the internal auditors

Each of the following represents an effective cash management practice except

X payments should be delayed as long as possible (without compromising the relationship with the payee) in order to maximize the interest-earning potential

Which internal control activity is followed when the management authorizes only the purchasing department to order goods and services for the company?

X safeguarding of assets and records