Chapter 7 WileyPlus Practice Multiple Choice

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 $500. Which of the following is one part of the journal entry needed to record the note collection by the company? Entry field with incorrect answer Credit to Notes Receivable for $500 Credit to Note Expense for $500 Debit to Notes Receivable for $500 Credit to Cash for $500

Added to the bank balance 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.

As used in a bank reconciliation, how are deposits in transit handled? Entry field with correct answer Added to the bank balance Deducted from the book balance Added to the book balance Deducted from the bank balance

False Deposits in transit are deposits the business knows are in route to the financial institution, but are not yet processed by the bank. They need to be added to the bank's balance in the bank reconciliation process.

Deposits in transit are added to the cash balance per books on the bank reconciliation. Entry field with correct answer True False

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

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

Interest earned Interest earned increases the liability of the bank and is accomplished with a credit memo.

For which item below might a bank issue a credit memorandum to a depositor's account? Entry field with correct answer Outstanding checks Interest earned An NSF check Monthly service charges

Monthly service charges Monthly service charges would decrease the liability of the bank and be processed with a debit memo.

For which of the following might a bank issue a debit memorandum to a depositor's account? Entry field with correct answer Deposits in transit Interest earned Monthly service charges Collection of a note receivable

NSF checks 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.

For which of the following will an adjusting entry be required as the result of a bank reconciliation? Entry field with correct answer NSF checks Outstanding checks Deposits in transit Bank errors

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

Internal auditors evaluate the system of internal controls for the companies that employ them. are hired by CPA firms to audit business firms. cannot evaluate the system of internal controls of the company that employs them because they are not independent. are employees of the IRS who evaluate the internal controls of companies filing tax returns.

Bonding

Of which of the following is obtaining insurance protection against dishonest employees an example? Entry field with correct answer Establishing responsibility Documentation procedures Bonding Segregation of duties

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

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

$10,400. Adding the amount of checks outstanding at the beginning of the period ($4,500) to the checks issued in the period ($45,700) and subtracting the checks cleared ($39,800) results in the October outstanding checks amount of $10,400.

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 Entry field with correct answer $10,400. $9,900. $1,400. $5,900.

Physical controls

Under which of the following do computer programs that limit unauthorized access to certain files fall? Entry field with correct answer Documentation procedures Independent internal verification Human resource controls Physical controls

Cash 200 Notes Receivable 200 The cash account increases and notes receivable decreases. This is the same transaction that would be recorded if a company directly receives a check in the mail from a customer.

Which is the adjusting entry Max Company would prepare when the bank collects a $200 note receivable from one of Max's customers? Entry field with correct answer Cash 200 Customer funds 200 Cash 200 Sales Revenues 200 Account Payable 200 Cash 200 Cash 200 Notes Receivable 200

All of these answer choices are correct.

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

Collusion between employees

Which of the following is not a principle of internal control? Entry field with correct answer Segregation of duties Documentation procedures Bonding of employees Collusion between employees

Segregation of duties

Which of the following is not an element of the fraud triangle? Entry field with incorrect answer Rationalization Financial pressure Segregation of duties Opportunity

Miscellaneous Expense 30 Cash 30 This journal entry recognizes the $30 miscellaneous expense and reduces the cash account on the accounting records.

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? Entry field with correct answer Loss on Bank Transactions 30 Cash 30 Miscellaneous Expense 30 Cash 30 Cash 30 Account Revenues 30 Cash 30 Bank Service Fee 30

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

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

Companies must file financial statements with the Internal Revenue Service.

Which of the following was not a result of the Sarbanes-Oxley Act? Entry field with correct answer The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. Companies must file financial statements with the Internal Revenue Service. 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. All publicly traded companies must maintain adequate internal controls.

Deposits in transit 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.

Which of the following will not require an adjusting entry? Entry field with correct answer Deposits in transit Bank service charges Book errors NSF checks

All of these answer choices are correct. All the principles of internal control activities are relevant to both manual and computerized accounting systems.

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

Independent bank reconciliations

Which one of the following is not a physical control? Entry field with correct answer Locked warehouses for inventories Bank safety deposit boxes for important papers Safes and vaults to store cash Independent bank reconciliations

Rationalization

Which one of the following is not a primary component of an internal control system? Entry field with incorrect answer Risk assessment Information and communication Monitoring Rationalization

Financial Performance Measures

Which one of the following is not one of the principles of internal control? Entry field with incorrect answer Independent internal verification Establishment of responsibility Documentation procedures Financial performance measures

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

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

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 one of the statements below is true? Entry field with incorrect answer 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. 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. Both deposits in transit and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process. Both deposits in transit and outstanding checks are added to the balance per the bank statement during the bank reconciliation process.

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

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