Accounting 210 Chapter 5

Which of the following would be deducted from the ending cash balance per books when performing a bank reconciliation? A. Electronic fund transfers B. Service charges C. Deposits in transit D. Outstanding checks

B

Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act? A. Conceal fraud B. Encourage good character C. Counteract incentives for fraud D. Reduce opportunities for fraud

A

The use of passcodes is an example of which internal control principle? A. Segregate duties B. Restrict access C. Document procedures D. Independently verify

B

Which of the following is deducted from the bank balance on a bank reconciliation? A. Deposits in transit B. Outstanding checks C. EFT received from customers D. Bank service charge

B

Assume a voucher system is in use. When the bill for goods or services is obtained, which control principle(s) must be met when the related control procedures are designed? A. Establish responsibility B. Segregate duties C. Segregate duties and restrict access D. Document procedures and independently verify

D

The main purposes of internal controls include all of the following except: A. prevention of error, theft, and fraud. B. promotion of operational efficiency. C. ensuring compliance with laws and regulations. D. providing more favorable financial information.

D

Why was the Sarbanes-Oxley Act (SOX) enacted? a. To bring GAAP closer to global financial reporting standards (IFRS). b. The lack of significant corporate frauds during the late 1990s and early 2000s warranted less monitoring for external stakeholders. c. To improve the financial reporting and restore investor confidence. d. Accounting rules had become so complex that investors could no longer understand them.

C

1. A weak system of internal ______ provides the ______ to commit fraud. a. controls; opportunity b. audits; rationalization c. financial statements; opportunity d. audits; incentive e. controls; incentive

A

A difference between an imprest payroll account and petty cash is petty cash is: A. not held at the bank. B. a special account at the company's bank. C. used for payroll. D. better controlled.

A

A small company would have the most difficulty in implementing which of the following internal control principles? A. Segregating duties B. Restricting access to cash or information C. Establishing responsibilities D. Documenting procedures

A

According to the Sarbanes-Oxley Act (SOX), who are the external auditors hired by and required to report to? A. Audit committee. B. Chief financial officer. C. President of the company. D. Internal Revenue Service.

A

Assigning sequential numbers to cash sales, so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of: A. documenting procedures. B. segregating duties. C. establishing responsibilities. D. restricting access.

A

Assigning sequential numbers to cash sales, so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of: a. documentation of procedures. b. segregation of duties. c. establishing responsibilities. d. restricting access.

A

Common control principles include all of the following, except: A. outsource work to third parties. B. segregate of duties. C. independently verify. D. restrict access to assets and information.

A

Fraud is best defined as: A. personal gain. B. misrepresenting oneself as another. C. deceitful actions of SOX. D. financial statement errors.

A

If a company hires an auditor to check that the work done by others within the company is supported by documentation, it is doing so under the principle of control activities referred to as: A. independent verification. B. segregation of duties. C. restrict access. D. document procedures.

A

In a bank reconciliation, an outstanding check is: A. deducted from the bank balance B. added to the book balance C. deducted from the book balance D. added to the bank balance

A

In a bank reconciliation, interest revenue earned on your bank account is: A. added to the book balance B. deducted from the book balance C. added to the bank balance D. deducted from the bank balance

A

Physically locking up assets and electronically securing other assets and information is required by the internal control principle of: A. restricting access. B. establishing responsibilities. C. segregation of duties. D. documenting procedures.

A

The customer typically explains the purpose of the payment using a(n): A. remittance advice. B. invoice. C. purchase order. D. check.

A

When the cash count sheets for the day equal $10,100 and the cash register reports $10,200, the journal entry to record the sales will include a: A. credit to Cash Shortage B. debit to Cash Shortage C. credit to Cash Overage D. debit to Cash Overage

A

Which of the following statement about internal control is not correct? a. The benefits of internal controls always exceed the costs. b. It helps protect against the theft of assets. c. It enhances the reliability of accounting information. d. It's objectives and components apply to all levels of an organization

A

Which of the following was not a change introduced by the Sarbanes-Oxley Act? A. Limits on executive compensation for most companies B. Stiffer fines and maximum jail sentences for willful misrepresentation of financial results C. An external audit of the effectiveness of internal controls D. Anonymous tip lines and legal protection to whistle-blowers

A

Which of the following would not cause the bank balance to differ from the cash balance in the accounting records? A. The company wrote checks that have cleared the bank. B. Deposits outstanding that have been recorded on the company's records, but not on the bank's. C. The company made an error in recording a deposit. D. The bank made an error in recording a deposit made by the company.

A

A company's cash receipts procedures include the following. Cashiers collect cash and issue a receipt at the point of sale. Supervisors take custody of the cash at the end of each cashier's shift and deposit it in the bank. Accounting staff then ensure the receipts from cash sales are properly recorded in the accounting system. Which internal control principle is most evident with these procedures? A. Restrict access B. Segregate duties C. Document procedures D. Independently verify

B

Companies that must comply with the requirements of the Sarbanes-Oxley Act (SOX) include all: a. all U.S. companies, both privately held and publicly traded. b. companies that trade on U.S. stock exchanges. c. U.S. companies that trade on U.S. stock exchanges. d. state and local government units in the U.S. e.foreign companies that trade on U.S. stock exchanges.

B

In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 2889 for December's utilities was correctly written and drawn for $790 but was erroneously entered into the accounting records as $970. The journal entry to adjust the books for the bank reconciliation would include a debit to: A. Utility Expense and a credit to Cash for $180. B. Cash and a credit to Utility Expense for $180. C. Utility Expense and a credit to Cash for $790. D. Cash and a credit to Utility Expense for $790.

B

Outstanding checks written by the company should be a(n) ______ on the company's bank reconciliation. A. deduction from the book balance B. deduction from the bank balance C. addition to the book balance D. addition to the bank balance

B

When cash is received from a remote source, the accounting department then compares the total on the cash receipts list with the stamped deposit slip received from the bank. Which internal control principle is being met with this procedure? a. documentation of procedures b. independent verification c. restricting access d. segregation of duties e. an audit report

B

Which of the following is not a change introduced by the Sarbanes-Oxley Act? a. Management must evaluate and report on the effectiveness of internal control over financial reporting. b. Publicly traded companies must have their financial statements internally audited. c. The company's board of directors is required to establish an audit committee comprised of independent directors. d. Public companies must have tip lines that allow employees to secretly submit concerns about questionable activities or transactions. e. Severe fines and penalties are imposed on the corporate executives for financial fraud.

B

Which of the following is not a difference between GAAP and IFRS? A. The order in which assets are presented on the balance sheet. B. The system of analyzing, recording, and summarizing transactions. C. The names given to the income statement, balance sheet, and statement of stockholders' equity. D. The standard-setting body with authority to establish accounting principles. E. The order in which liabilities are presented on the balance sheet.

B

Which of the following is not one of the internal control functions performed by a cash register? A. Document the amount charged for each item sold B. Perform the bank reconciliation C. Restrict access to cash D. Document the total cash sales

B

Which of the following statements is false? A. The Sarbanes-Oxley Act requires external auditors to test the company's internal control system. B. The four financial statements are the only items required in the annual report sent to the SEC; all other items are optional. C. The opportunity to commit fraud exists if there are weak internal controls. D. The Sarbanes-Oxley Act (SOX) requires the company's board of directors to establish an audit committee of independent directors to oversee the financial matters of the company. E. The board of directors of a company uses financial accounting in their role in governance of management.

B

Which of the following statements is false? A. The SEC requires all publicly traded companies to have their internal controls audited by external auditors. B. External audits are conducted by Certified Public Accountants (CPAs) who are members of the board of directors and often stockholders of the company. C. The goal of the external audit is to determine whether financial statements have been materially prepared in accordance with GAAP. D. The external auditors are will issue a qualified opinion on the financial statements if any material misstatements (departures from GAAP) are found.

B

Which of the following statements is true? A. The three components of the fraud triangle are opportunity, incentive, and market analysis. B. The management team is ultimately and finally responsible for the internal controls of the company. C. The Sarbanes-Oxley Act (SOX) attacks the incentive arm of the fraud triangle by requiring that auditors audit the internal controls. D. The Sarbanes-Oxley Act was passed in 1934 when Congress formed the Securities Exchange Commission. E. The opportunity point of the fraud triangle is best attacked through the imposition of tough fines and prison terms for those convicted of financial statement fraud.

B

Which one of the statements appearing below is correct regarding bank reconciliations? A. A bank reconciliation is an external report prepared to report the cash balance to investors and creditors. B. After preparing a bank reconciliation, no journal entries need to be made for outstanding checks or deposits in transit. C. If a company's records show a different cash balance from that shown on the company's bank statement, either the company or the bank has made an error. D. The up-to-date ending cash balance on the bank statement side should not equal the up-to-date ending cash balance on the book side.

B

Which principle of internal control states that you should not make one employee responsible for all parts of a transaction? A. Responsibility centers B. Separation of duties C. Restrict access D. Procedure documentation

B

A company has an asset turnover ratio of 1.15. Which of the following statements is true? A. The company generates $1.15 of net income for every $1 in reported assets. B. The company buys assets more frequently than it sells them. C. The company generates $1.15 of sales revenue for every $1 in reported assets. D. This is an improvement over the previous period when the asset turnover rate was 1.7.

C

All of the following are goals of internal control except: A. reducing the risk of fraud. B. producing reliable and timely accounting information for use by people internal and external to the organization. C. minimizing the amount of income taxes that must be paid. D. adhering to laws and regulations.

C

Deposits in transit are ______ on a bank reconciliation. A. added to the book balance B. deducted from the bank balance C. added to the bank balance D. deducted from the book balance

C

Employee fraud includes all of the following categories except: A. asset misappropriation. B. corruption. C. deception. D. financial statement fraud.

C

If the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank reconciliation as a(n): A. $27 addition to the book balance B. $85 deduction from the book balance C. $27 deduction from the book balance D. $85 addition to the book balance

C

On October 31, 2015, the bank statement shows that your company has $12,956.73 in its checking account. You are aware of three outstanding checks for a total of $2,112.19. During October, 2015, the bank rejected two deposited checks from customers totaling $654.19 because of insufficient funds and charged you $12.00 in service fees. You had not yet received notice about the bad checks, but you were aware of and have recorded the $12.00 of service fees. Prior to adjustment on October 31, 2015, your Cash account would have a balance of: A. $14,402.73. B. $15,711.11. C. $11,498.73. D. $10,202.35.

C

The Sarbanes-Oxley Act (SOX) requires the establishment of an audit committee that includes the: A. president of the company. B. chief financial officer of the company. C. independent directors. D. company's external auditors.

C

The Statement of Stockholders' Equity: A. shows only the changes in retained earnings for the period. B. shows total assets and liabilities in order of liquidity. C. includes changes in contributed capital for the period. D. shows cash flows from operating, investing, and financing activities.

C

The amount of cash available for deposit at the bank is determined from the: A. income statement. B. bank reconciliation. C. cash count sheet. D. unadjusted trial balance.

C

The cashier uses the cash register and its accompanying point-of-sale accounting system to perform three important functions. Which of the following is not one of those functions? A. Document total cash sales B. Document amount charged for each item sold C. Segregate duties D. Restrict access

C

The internal control principle related to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it is referred to as: A. duplication of responsibility. B. mandatory vacations. C. segregation of duties. D. rotation of duties.

C

The internal control principle related to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it is referred to as: a. duplication of responsibility. b. an audit report. c. segregation of duties. d. rotation of duties. e. restricting access.

C

The three components of the fraud triangle are a. Incentive, opportunity, and internal controls b. Opportunity, internal controls, and bank reconciliation c. Incentive, opportunity, and rationalization d. Incentive, segregation of duties, and voucher system

C

Which of the following is the primary (main) objective of the external audit of a company's financial statements? A. To provide a forecast of the company's future earnings. B. To assure no fraud has been committed by the company's management or employees. C. To provide credibility that the financial statements are fairly presented. D. To detect all accounting errors made by the accounting system and employees. E. To assure creditors that they will be repaid.

C

Which of the following is the primary goal of internal controls for cash payments? a. Make payments only when a purchase is supported by complete voucher documentation b. Confirm that the request for payments is made by someone who is approved to order goods or services of the type and amount requested c. Ensure that the business pays only for properly authorized transactions d. Ensure that the supplier charges only for items received at approved price

C

Which of the following statements is true? A. Independent auditors are advisors who analyze financial statements and other economic information to formulate forecasts and stock recommendations. B. Comparative financial statements are those of a company in one industry presented with another company in the same industry. C. The statement of stockholders' equity reports the same information as the statement of retained earnings, but also provides information about changes in contributed capital. D. External audits are conducted by Certified Public Accountants (CPAs) who are not independent of the company and are usually also members of management.

C

Which of the following was passed by Congress in response to financial statement frauds that occurred in the early 2000s? A. Federal Accounting Standards Board Act B. Securities and Exchange Act C. Sarbanes-Oxley Act D. Clayton Act

C

All of the following are requirements of the Sarbanes-Oxley Act (SOX) except: a. tip lines that allow employees to secretly submit concerns about questionable accounting or auditing practices b. fines of up to $5 million plus repayment of any fraud proceeds c. evaluation and reporting on the effectiveness of internal control over financial reporting for large public companies by external auditors d. evaluation and reporting on the effectiveness of internal control over financial reporting for all public companies by management with disclosure that management is not responsible for the internal control system

D

An adjusting journal entry to recognize accrued salaries payable would cause which of the following? A. A decrease in assets and stockholder's equity. B. A decrease in assets and liabilities. C. An increase in expenses, liabilities, and stockholder's equity. D. An increase in expenses and liabilities and a decrease in stockholder's equity. E. A decrease in expenses, liabilities, and stockholder's equity.

D

During the month of May 2010, customers paid $6,000 to Inamorata Inc. for services to be provided during future months. Upon receipt, the payments were recorded in the Unearned Revenue account. No adjustments have been made relating to this account. As of August 31, 2010, the company was still obligated to perform $3,500 of services to these customers. If the company makes an adjustment as of August 31, 2010, what should be included in the related adjusting journal entry? A. $3,500 decrease to Unearned Revenue B. $6,000 decrease to Unearned Revenue C. $3,500 increase to Unearned Revenue D. $2,500 decrease to Unearned Revenue E. $2,500 increase to Unearned Revenue

D

NSF checks from customers should be a(n) ______ on a bank reconciliation. A. addition to the bank balance B. subtraction from the bank balance C. addition to the book balance D. subtraction from the book balance

D

The three parts of the fraud triangle are: A. incentive, opportunity, and regulation B. incentive, character (rationalization), and responsibility. C. opportunity, board of directors, and the auditors. D. incentive, opportunity, and character (rationalization)

D

Which of the following is not a commonly used internal control? A. Mandatory vacations B. Anonymous hotlines C. Bonding employees D. Consolidating duties

D

Which of the following statements concerning a petty cash fund is not correct? A. A petty cash fund acts as a control by establishing a limited amount of cash to use for specific types of expenses. B. A petty cash fund is similar to an imprest payroll account. C. The company's petty cash custodian is responsible for operating the petty cash fund. D. To avoid the administrative costs of the use of purchasing cards, or Pcards, many organizations have started using petty cash funds.

D

Which of the following statements is false? A. The opportunity to commit fraud exists if there are weak internal controls. B. As of 2013, the U.S. has not switched to IFRS. C. The annual report filed with the Securities Exchange Commission is the 10-K. D. The debt-to- assets ratio indicates how efficient a company is at controlling its expenses.

D

A voucher system employs various forms of documentation related to steps in the control over cash payments to vendors and other parties. Which of the following is not a document in the voucher system? a. Company check b. Purchase requisition c. Receiving report d. Supplier invoice e. Cash count sheet

E

Which of the following statements is true? A. The fraud triangle provides three steps in the accounting cycle from adjusting to closing of the books. B. The U.S. has mandated that all publicly traded companies switch from GAAP to IFRS on January 1, 2015. C. MD&A (Management's Discussion & Analysis) in an annual report contains the auditor's report, a list of officers, and a listing of adjusting journal entries made. D. Form 8-K is the annual report that publicly traded companies must file with the Securities & Exchange Commission (SEC). E. When auditors conclude that a companys financial statements conform to GAAP, the audit report is said to be unqualified.

E