Ch. 7 Wiley Plus Practice Questions

Jones Company collected the following information to prepare its May bank reconciliation: Cash balance per books, May 31 $5,300 Deposits in transit 510 Notes receivable with interest collected by bank 580 Bank service charges 30 Outstanding checks 180 NSF check 150 How much is the adjusted cash balance per books on May 31? a. $5,700 b. $5,810 c. $5,660 d. $6,210

a. $5,700

Which of the following is not an element of the fraud triangle? a. Segregation of duties b. Financial pressure c. Opportunity d. Rationalization

a. Segregation of duties

Which one of the statements below is true? a. The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process. b. Both deposits in transit and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process. c. Deposits in transit are deducted from the balance per the bank statement, and outstanding checks are added to the balance per the bank statement during the bank reconciliation process. d. Both deposits in transit and outstanding checks are added to the balance per the bank statement during the bank reconciliation process.

a. The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.

Which of the following statements is correct? a. The person who has custody of assets should not perform the record keeping for the assets. b. The person who has custody of assets should also perform the record keeping for the assets. c. Control is most effective when two or three people are given responsibility for the same task. d. It is often a waste of company resources to have an employee perform independent internal verification.

a. The person who has custody of assets should not perform the record keeping for the assets.

Which of the following will not require an adjusting entry? a. Deposits in transit b. NSF checks c. Book errors d. Bank service charges

a. deposits in transit

Springer Company listed outstanding checks totaling $4,500 on its September bank reconciliation. In October, the company issued checks totaling $45,700. The October bank statement shows that checks totaling $39,800 cleared the bank. In addition, a check from one of Springer's customers in the amount of $500 was returned as NSF. The outstanding checks on the October bank reconciliation should total a. $9,900. b. $10,400. c. $1,400. d. $5,900.

b. $10,400

As used in a bank reconciliation, how are deposits in transit handled? a. Deducted from the bank balance b. Added to the bank balance c. Deducted from the book balance d. Added to the book balance

b. Added to the bank balance

Of which of the following is obtaining insurance protection against dishonest employees an example? a. Documentation procedures b. Bonding c. Segregation of duties d. Establishing responsibility

b. Bonding

Which is the adjusting entry Max Company would prepare when the bank collects a $200 note receivable from one of Max's customers? a. Account Payable 200 Cash 200 b. Cash 200 Notes Receivable 200 c. Cash 200 Sales Revenues 200 d. Cash 200 Customer funds 200

b. Cash 200 Notes Receivable 200

Which one of the following statements is correct? a. Only large companies employ internal auditors and utilize a system of internal controls. b. Internal auditors are company employees who evaluate the effectiveness of the company's system of internal control on a continuous basis. c. External auditors are company employees who evaluate the effectiveness of the company's system of internal control on a continuous basis. d. The public accountants conducting annual audits are responsible for continuous evaluations of a company's system of internal control.

b. Internal auditors are company employees who evaluate the effectiveness of the company's system of internal control on a continuous basis.

For what purpose are physical controls used in a business? a. To produce accurate financial statements. b. To enhance the accuracy and reliability of its accounting records and to safeguard its assets. c. To prevent fraud. d. To deter employee dishonesty.

b. To enhance the accuracy and reliability of its accounting records and to safeguard its assets.

Deposits in transit are added to the cash balance per books on the bank reconciliation. a. true b. false

b. false

Reasonable assurance rests on the premise that a. bonding will prevent employees from stealing. b. the costs of establishing controls should not exceed their expected benefit. c. employees are basically honest people. d. a system of internal controls will prevent errors.

b. the costs of establishing controls should not exceed their expected benefit.

Which of the following is not a principle of internal control? a. Segregation of duties b. Documentation procedures c. Collusion between employees d. Bonding of employees

c. Collusion between employees

Which one of the following is not one of the principles of internal control? a. Independent internal verification b. Documentation procedures c. Financial performance measures d. Establishment of responsibility

c. Financial performance measures

For which of the following will an adjusting entry be required as the result of a bank reconciliation? a. Bank errors b. Deposits in transit c. NSF checks d. Outstanding checks

c. NSF checks

Internal auditors a. are employees of the IRS who evaluate the internal controls of companies filing tax returns. b. are hired by CPA firms to audit business firms. 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.

c. evaluate the system of internal controls for the companies that employ them.

Which of the following is a reason why an organization establishes a system for internal control? a. To safeguard its assets. b. To increase efficiency of operations. c. To ensure compliance with laws and regulations. d. All of these answer choices are correct.

d. All of these answer choices are correct.

Which one of the following control activities is relevant when a company uses a computerized (rather than manual) accounting system? a. Establishment of responsibility. b. Segregation of duties. c. Independent internal verification. d. All of these answer choices are correct.

d. All of these answer choices are correct.

Which of the following was not a result of the Sarbanes-Oxley Act? a. All publicly traded companies must maintain adequate internal controls. b. Corporate executives and board of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so. c. The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. d. Companies must file financial statements with the Internal Revenue Service.

d. Companies must file financial statements with the Internal Revenue Service.

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? a. Credit to Cash for $500 b. Debit to Notes Receivable for $500 c. Credit to Note Expense for $500 d. Credit to Notes Receivable for $500

d. Credit to Notes Receivable for $500

Which one of the following is not a physical control? a. Locked warehouses for inventories b. Bank safety deposit boxes for important papers c. Safes and vaults to store cash d. Independent bank reconciliations

d. Independent bank reconciliations

Which of the following is the correct adjusting entry for the account holder when the bank submits a debit memorandum for a monthly service charge of $30? a. Cash 30 Bank Service Fee 30 b. Loss on Bank Transactions 30 Cash 30 c. Cash 30 Account Revenues 30 d. Miscellaneous Expense 30 Cash 30

d. Miscellaneous Expense 30 Cash 30

Under which of the following do computer programs that limit unauthorized access to certain files fall? a. Human resource controls b. Documentation procedures c. Independent internal verification d. Physical controls

d. Physical controls

Which one of the following is not a primary component of an internal control system? a. Risk assessment b. Information and communication c. Monitoring d. Rationalization

d. Rationalization

Why should a bank reconciliation be prepared? a. To explain any difference between the bank deposits and the checks written. b. To make sure employees have not committed fraud. c. To make sure the actual cash balance is the same as the cash received from customers. d. To explain any difference between the depositor's balance per books and the balance per bank.

d. To explain any difference between the depositor's balance per books and the balance per bank.

For which item below might a bank issue a credit memorandum to a depositor's account? a. An NSF check b. Monthly service charges c. Outstanding checks d. Interest earned

d. interest earned

For which of the following might a bank issue a debit memorandum to a depositor's account? a. Interest earned b. Collection of a note receivable c. Deposits in transit d. Monthly service charges

d. monthly service charges