MC Chapter 5

Consider the following example and determine the amount to be recorded under the cash short and over account: Cash register total for cash sales → $25,000 Cash receipts from cash sales → $24,975 A. ($25) B. $50 C. $25 D. ($50)

A. ($25)

Which of the following is recorded as an increase in liability in a company's account by a bank? A. Electronic funds transfer (EFT) deposits B. Electronic funds transfer (EFT) payments C. Service charges D. Not sufficient funds (NSF) checks

A. Electronic funds transfer (EFT) deposits

Which of the following is true of the ratio of cash to monthly cash expenses? A. It is especially used when assessing the ability of new companies to operate. B. The numerator excludes short-term investments that are reported under current assets. C. It indicates the number of times financial obligations are covered by cash available. D. It can only be applied when the net cash flows are positive.

A. It is especially used when assessing the ability of new companies to operate.

_____ restores the petty cash fund to its original amount. A. Replenishing B. Accruing C. Depleting D. Organizing

A. Replenishing

Which of the following is the purpose of the Sarbanes-Oxley Act? A. To restore public confidence and trust in the financial reporting of companies B. To influence companies to minimize the cost of production C. To ensure the goals of the organization are achieved D. To minimize operating risk by reducing fixed operating costs

A. To restore public confidence and trust in the financial reporting of companies

A debit memo entry on a bank statement indicates: A. a decrease in the depositor's account. B. a decrease in the expenses of the bank. C. an increase in the income of the bank. D. an increase in the depositor's account.

A. a decrease in the depositor's account.

Compute the ratio of cash to monthly cash expenses from the information given below. Cash in hand → $500 Cash at bank → $1,500 U.S. Treasury bills → $2,000 Short-term investment → $725 Equity investment → $1,250 Net cash flows from operations for the year → $12,600 A. 3.10 months B. 4.50 months C. 6.20 months D. 5.70 months

B. 4.50 months

How would the following error be recorded in the bank reconciliation statement? A company recorded a deposit of $2,300 as $3,200. A. The difference of $900 would be added to the cash balance in the company section. B. The difference of $900 would be deducted from cash balance in the company section. C. The difference of $900 would not be record in the bank reconciliation statement. D. The difference of $900 would be added to the cash balance in the bank section.

B. The difference of $900 would be deducted from cash balance in the company section.

Which of the following is an instance that would require replenishment of the petty cash fund? A. When the total expenditure goes beyond $1,000 B. When it reaches a minimum amount C. When there is excessive cash in hand D. When the number of transactions goes beyond 20

B. When it reaches a minimum amount

A bank reconciliation is usually divided into: A. a cash balance section and an adjusted balance section. B. a bank section and a company section. C. a company section and an adjusted balance section. D. a bank section and a cash balance section.

B. a bank section and a company section.

The examples of cash equivalents include: A. commercial paper, money market accounts, and equity investments. B. commercial paper, money market funds, and U.S. Treasury bills. C. short-term investments, equity investments, and U.S. Treasury bills. D. money market accounts, short-term investments, and equity investments.

B. commercial paper, money market funds, and U.S. Treasury bills.

The Sarbanes-Oxley Act applies only to _____. A. privately held companies B. publicly held companies C. charitable institutions D. government agencies

B. publicly held companies

A(n) _____ is a set of procedures for authorizing and recording liabilities and cash payments. A. banking system B. voucher system C. operating system D. accrual system

B. voucher system

_____ is a measure that is useful in assessing the ability of the company to operate in the event of negative net cash flows from operations. A. Operating cash flow ratio B. Price to cash flow ratio C. Cash to monthly cash expenses ratio D. Cash flow margin ratio

C. Cash to monthly cash expenses ratio

_____ is computed by dividing net cash flows from operations by 12. A. Investing cash flow B. Monthly cash and cash equivalent C. Monthly cash burn D. Cash to monthly cash payoff

C. Monthly cash burn

Control of cash payments should provide reasonable assurance that: A. cash is paid only out of the authorized amount. B. cash payments are reconciled. C. cash is used effectively and efficiently. D. minimum cash balance is maintained.

C. cash is used effectively and efficiently.

Which of the following is verified at the end of a bank reconciliation? A. All increases made in the bank section are reflected as decreases in the company section. B. All increases made in the company section are reflected as decreases in the bank section. C. Totals of the amounts adjusted in the bank and the company sections are equal. D. Adjusted balances under the bank and company sections are equal.

D. Adjusted balances under the bank and company sections are equal.

Which of the following factors attributes to the limitations of internal control? A. Changes in the capital structure B. Improper communication between management and the auditors C. Constant rift between management and employees D. Human element of controls

D. Human element of controls

Which of the following statements is true of a bank reconciliation statement? A. The company's records do need to be updated for items in the company and the bank section of the bank reconciliation. B. The company's records do not need to be updated for any items in the company section of the bank reconciliation. C. The company's records do need to be updated for any items in the bank section of the bank reconciliation. D. The company's records do need to be updated for any items in the company section of the bank reconciliation.

D. The company's records do need to be updated for any items in the company section of the bank reconciliation.

A business's personnel policies include: A. employee codes of ethics, adherence to control policies, and promotion of employees. B. employee codes of ethics, emphasis on controls, and promotion of employees. C. employee codes of ethics, emphasis on controls, and conflict-of-interest policies. D. employee codes of ethics, evaluation of employees, and conflict-of-interest policies.

D. employee codes of ethics, evaluation of employees, and conflict-of-interest policies.

A(n) _____ is a preapproved amount the bank is willing to lend to a customer upon request. A. signature loan B. consolidated loan C. investment credit D. line of credit

D. line of credit

A positive balance in the cash short and over account is reported as _____. A. sales revenue B. operating revenue C. unearned revenue D. other revenue

D. other revenue