Test 4 Chapter 7
A company's system of internal control
is expected to provide reasonable assurance of the reliability of a company's accounting records.
Which of the following requires an adjusting entry on the company's books as the result of a bank reconciliation?
A bank service charges
Nelson Company collected the following information to prepare its August bank reconciliation: Cash balance per books, August 31, $9,400. Deposits in transit, $1,200. Notes receivable with interest collected by bank, $1,850. Bank service charges, $50. Outstanding checks, $700. NSF check, $550. How much is the adjusted cash balance per books on August 31?
$10,650 Solution: The book side of the cash reconciliation begins with $9,400 to which amounts collected by the bank are added (e.g., the note receivable of $1,850) and amounts the bank deducted from the account are subtracted (e.g., the bank service charges of $50 and the NSF check of $550) to arrive at the adjusted cash balance per books of $5,700. Outstanding check and deposits in transit affect the bank side of the reconciliation.
At June 30, Kingman Company has the following information: Cash balance per bank, $11,500 Deposits in transit, $600 Notes receivable and interest collected by bank, $250 Bank charge for check printing, $50 Outstanding checks, $1,375 NSF check, $125 What is the company's adjusted cash balance at the end of June?
$10,725. Solution: Adjusted cash balance = cash per bank - outstanding checks + deposits in transit Adjusted cash balance = 11,500 - 1,375 + 600 = 10,725
At June 31, Kingman Company has the following information: Cash balance per bank, $11,500 Outstanding checks, $450 Deposits in transit, $1,225 Notes receivable collected by bank, $1,000 Bank service charge, $50 NSF check, $100 What is the company's adjusted cash balance at the end of June?
$12,275. Solution: Cash per bank, 10,500 Add: Deposits in transit, 1,225 Less: Outstanding checks, (450) Adjusted cash balance. 11,275
Nelson Company gathered the following reconciling information in preparing its August bank reconciliation: Cash balance per books, Aug. 31, $12,600 NSF check, $510 Outstanding checks, $6,000 Bank charge for check printing, $60 Deposits in transit, $450 Notes receivable and interest collected by bank, $2,550 The adjusted cash balance per books on August 31 is
$14,580. Solution: Balance per books on August 31, $12,600 Add: Note collected by the bank, $2,550 Less: Bank service charge, ($60) Less: Customer's NSF check, ($510) Adjusted cash balance per books on August 31, $14,580
A check correctly written by a company for $275 was incorrectly recorded by that same company as $257. On the bank reconciliation
$18 should be deducted from the cash balance per books.
Barker Company collected the following information to prepare its July bank reconciliation: Cash balance per bank, July 31, $48,200. Note receivable of $3,800 plus $200 of interest collected, $4,000. Outstanding checks, $7,100. Deposits in transit, $2,700. Bank service charges, $50. NSF check, $500. How much is the adjusted cash balance per bank on July 31?
$43,800 Solution: Balance per bank on July 31, $48,200 Add: Deposits in transit, $2,700 Less: Outstanding checks, ($7,100) Adjusted cash balance per bank, $43,800
Barker Company collected the following information to prepare its July bank reconciliation: Cash balance per bank, July 31, $43,500. Note receivable of $5,200 plus $300 of interest collected, $5,500. Outstanding checks, $3,500. Deposits in transit, $4,100. Bank service charges, $50. NSF check, $600. How much is the adjusted cash balance per bank on July 31?
$44,100 Solution: Balance per bank on July 31, $43,500 Add: Deposits in transit, $4,100 Less: Outstanding checks, ($3,500) Adjusted cash balance per bank, $44,100
Nelson Company gathered the following reconciling information in preparing its August bank reconciliation: Cash balance per books, August 31, $6,400 Deposits in transit, $300 Outstanding checks, $2,000 NSF check, $150 Notes receivable and interest collected by bank, $1,200 Bank charge for check printing, $75 The adjusted cash balance per books on Aug. 31 is
$7,375. Solution: Balance per books on August 31, $6,400 Add: Note collected by the bank, $1,200 Less: Bank service charge, ($75) Less: Customer's NSF check, ($150) Adjusted cash balance per books on August 31, $7,375
Chester Company collected the following information to prepare its September bank reconciliation: Cash balance per bank, September 30, $72,700. Note receivable of $1,700 plus $200 of interest collected, $1,900. Outstanding checks, $4,600. Deposits in transit, $2,150. Bank service charges, $50. NSF check, $450. The company erroneously recorded a $1,000 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 bank on September 30?
$70,550 Solution: Balance per bank on Sep. 30, $72,700 Add: Deposits in transit, $2,150 Less: Outstanding checks, ($4,600) Add: Bank error (see note below), $300 Adjusted cash balance per bank, $70,550
Chester Company collected the following information to prepare its September bank reconciliation: Cash balance per books, September 30, $73,250. Note receivable of $4,000 plus $200 of interest collected, $4,200. Outstanding checks, $14,500. Deposits in transit, $10,250. Bank service charges, $50. NSF check, $400. The company erroneously recorded a $230 cash payment on its books as a $320 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 September 30?
$77,090 Solution: Balance per books on Sep. 30, $73,250 Add: Note collected by the bank including interest, $4,200 Less: Bank service charge, ($50) Less: NSF check, ($400) Add: Book error (see note below), $90 Adjusted cash balance per books, $77,090
Chester Company collected the following information to prepare its September bank reconciliation: Cash balance per books, September 30, $75,750. Note receivable of $4,200 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 September 30?
$79,610 Solution: Balance per books on Sep. 30, $75,750 Add: Note collected by the bank including interest, $4,500 Less: Bank service charge, ($50) Less: NSF check, ($500) Less: Book error (see note below), ($90) Adjusted cash balance per books, $79,610
Nelson Company gathered the following reconciling information in preparing its August bank reconciliation: Cash balance per books, Aug. 31, $7,400 Bank charge for check printing, $25 Outstanding checks, $2,500 NSF check, $400 Notes receivable and interest collected by bank, $1,140 Deposits in transit, $500 The adjusted cash balance per books on August 31 is
$8,115. Solution: Balance per books on August 31, $7,400 Add: Note collected by the bank, $1,140 Less: Bank service charge, ($25) Less: Customer's NSF check, ($400) Adjusted cash balance per books on August 31, $8,115
Chester Company collected the following information to prepare its December bank reconciliation: Cash balance per books, December 31, $82,600. Note receivable of $1,750 plus $250 of interest collected, $2,000. Outstanding checks, $4,900. Deposits in transit, $2,500. Bank service charges, $50. NSF check, $650. The company erroneously recorded a $1,000 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 December 31?
$83,000 Solution: Balance per books on Dec. 31, $82,600 Add: Note collected by the bank including interest, $2,000 Less: Bank service charge, ($50) Less: NSC check, ($650) Less: Book error (see note below), ($900) Adjusted cash balance per books, $83,000
A check correctly written by West Company for $167 was incorrectly recorded on West Company's books as $176. As a result, the bank reconciliation should include
$9 added to the cash balance per books.
A check correctly written by a company for $312 was incorrectly recorded by that same company as $321. On the bank reconciliation
$9 should be added to the cash balance per books.
A check correctly written by a company for $321 was incorrectly recorded by that same company as $312. On the bank reconciliation
$9 should be deducted from the cash balance per books.
A check correctly written by Speedy Delivery Company for $1,340 was incorrectly recorded on its books as $1,430. As a result, the company's next monthly bank reconciliation should include
$90 added to the cash balance per books. Solution: The company deducted too much (i.e., $1,430 - $1,340 = $90) from its cash balance. Correcting the error requires adding $90.
A check correctly written by Speedy Delivery Company for $1,430 was incorrectly recorded on its books as $1,340. As a result, the company's next monthly bank reconciliation should include
$90 deducted from the cash balance per books. Solution: The company deducted too little (i.e., $1,430 - $1,340 = $90) from its cash balance. Correcting the error requires deducting $90.
Chester Company collected the following information to prepare its September bank reconciliation: Cash balance per books, September 30, $89,300. Note receivable of $1,900 plus $200 of interest collected, $2,100. Outstanding checks, $5,100. Deposits in transit, $3,800. Bank service charges, $50. NSF check, $600. The company erroneously recorded a $200 cash payment on its books as a $2,000 cash payment. Also, the bank erroneously added $1,000 to the company's checking account. The bank should have added the money to a different customer's account. How much is the adjusted cash balance per books on September 30?
$92,550 Solution: Balance per books on Sep. 30, $89,300 Add: Note collected by the bank including interest, $2,100 Less: Bank service charge, ($50) Less: NSF check, ($600) Add: Book error (see note below), $1,800 Adjusted cash balance per books, $92,550
A check correctly written by Speedy Delivery Company for $1,403 was incorrectly recorded on its books as $1,304. 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 (i.e., $1,403 - $1,304 = $99) from its cash balance. Correcting the error requires deducting $99.
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 deposit of $110 was incorrectly recorded by the bank as a deposit of $101.
For which of the following errors 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.
Which one of the following is a physical control?
Alarms to prevent break-ins
Which one of the following is not a control procedure used for over-the-counter receipts?
All of these are control procedures used for over-the-counter receipts - Providing the customers with an itemized receipt - Use of a cash register where the amount rung up is clearly visible to the customer - A cash register's tape is locked in the register and only a supervisor can access it
Which one of the following would not result in a bank issuing a debit memorandum?
Collection of a note receivable.
For which of the following might a bank issue a debit memorandum to a depositor's account?
NSF check
Which of the following statements is false with regards to internal controls?
Companies must develop a system of internal control even if they are not publicly-traded.
Which of the following is not one of the main factors that contributes to fraudulent activity and is also known as part of the fraud triangle?
Company size
Which one of the following is a primary component of an internal control system?
Control environment
A company's monthly bank statement shows a collection of a note receivable by the bank in the amount of $250. 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 $250
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
A company's monthly bank statement shows a collection of a note receivable by the bank in the amount of $1,000. Which of the following is one part of the journal entry needed to record the note collection by the company?
Debit to Cash for $1,000
A NSF check should appear in which section of the bank reconciliation?
Deduction from the balance per books
Which one of the following is not a primary component of an internal control system?
Financial pressure
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 $1,000 non-interest bearing note receivable from one of Max's customers on Max Company's behalf?
Increase the Cash account by $1,000 and decrease the Notes Receivable account by $1,000.
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 $200 non-interest bearing note receivable from one of Max's customers on Max Company's behalf?
Increase the Cash account by $200 and decrease the Notes Receivable account by $200.
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 basis.
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 $25?
Miscellaneous Expense 25 Cash 25
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
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 $50?
Miscellaneous Expense 50 Cash 50
Which of the following is an element of the fraud triangle?
Opportunity
Which one of the following is not a primary component of an internal control system?
Opportunity
Which of the following statements is false with regards to internal controls?
Publicly-traded companies internal control system are evaluated by internal auditors but not by independent auditors.
Which of the following is an element of the fraud triangle?
Rationalization
Which one of the following is not a physical control?
Rationalization
Which of the following is not an effective internal control over cash disbursements?
Requiring personnel who authorize cash disbursements to work continuously without vacations
Which of the explicitly requires that all publicly traded companies must maintain adequate internal controls?
Sarbanes-Oxley Act
A very small company would have the most difficulty in implementing which of the following internal control activities?
Segregation of duties
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.
Which one of the following is a physical control?
Television monitors to deter theft
Which of the following statements is correct regarding internal controls?
The person who has custody of assets should not perform the record keeping for the assets.
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.
Which of the following controls would best help detect the removal of a blank check by an employee from the back of a company's checkbook for subsequent misappropriation of funds?
The use of prenumbered checks
What is the rationale for the internal control principle known as segregation of duties?
The work of one employee should, without duplication of effort, provide a reliable basis for evaluating the work of another employee.
Which one of the following is a physical control?
Time clocks for recording time worked
Internal control consists of all of the methods and measures adopted within an organization to do all of the following except
To attract new investors
Internal control consists of all of the methods and measures adopted within an organization to do all of the following except
To deliver goods and services to customers more rapidly
Internal control consists of all of the methods and measures adopted within an organization to do all of the following except
To maximize revenues
Obtaining insurance protection against dishonest employees an example of
bonding
Which of the following is not an element of the fraud triangle?
collusion
In preparing a bank reconciliation, outstanding checks are
deducted from the balance per bank
Internal auditors
evaluate the system of internal controls for the companies that employ them.
Which of the following is an element of the fraud triangle?
financial pressure
For which item below might a bank issue a credit memorandum to a depositor's account?
interest earned
During a given year, several parties examine the financial records of ABC Company. These parties include internal auditors, independent auditors, and Internal Revenue Service agents. Which of these parties are considered employees of ABC Company?
internal auditors
Which of the following would not be subtracted from the balance per books on a bank reconciliation?
outstanding checks
Russell Company assembled the following information in completing its March bank reconciliation: Cash balance per bank, $11,460 Cash balance per books, $13,200 Outstanding checks, $2,325 Deposits in transit, $3,750 NSF check, $240 Bank service charge, $75 The net effect of the adjusting entries that the company will journalize as a result of this reconciliation will
reduce its cash account by $315. Solution: Cash per books, 13,200 Less: NSF check, (240) Less: Bank service charge, (75) Adjusted cash balance, 12,885 Total reduction in cash per books = 240 + 75 = 315
Russell 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, $3,100 Deposits in transit, $5,000 NSF check, $320 Bank service charge, $100 The net effect of the adjusting entries that the company will journalize as a result of this reconciliation will
reduce its cash account by $420. Solution: Cash per books, 17,600 Less: NSF check, (320) Less: Bank service charge, (100) Adjusted cash balance. 17,180 Total reduction in cash per book = 320 + 100 = 420
Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates
segregation of duties is violated.
Which of the following would be deducted from the balance per books on a bank reconciliation?
service charges
If a company correctly wrote a check for $491 but it incorrectly recorded the check as $419 on its books, the appropriate treatment on the bank reconciliation would be to
subtract $72 from the cash balance per books.
A check written by the company for $650 was incorrectly recorded by the bank as $560. In the bank reconciliation, this $90 error would be
subtracted from the cash balance per bank statement.
A deposit of $270 was incorrectly recorded by the bank as a deposit of $720. In the bank reconciliation, this $450 error would be
subtracted from the cash balance per bank statement.
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.
A consequence of segregation of duties is that
theft is still possible when several employees are involved.
If employees are bonded
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 with the balance per bank
All of the following are examples of internal control principles or internal control procedures except
using customer satisfaction surveys.
