Recharge Ch. 4

Match each component of internal control with its definition. Drag and drop application. 1. Monitoring 2. Control activities 3. Risk assessment 4. Control environment a. Policies and procedures that help ensure management's directives are being carried out b. Identifies and analyzes factors that could prevent objectives from being achieved c. Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure d. Includes formal procedures for reporting control deficiencies

1. Monitoring - d. Includes formal procedures for reporting control deficiencies 2. Control activities - a. Policies and procedures that help ensure management's directives are being carried out 3. Risk assessment - b. Identifies and analyzes factors that could prevent objectives from being achieved 4. Control environment - c. Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure

Which of the following items are not included in cash? a. Accounts receivable from customers b. Balance in checking accounts c. Cash in savings account d. Currency and coins

a. Accounts receivable from customers

Select all that apply Which of the following are components of internal control? a. Risk assessment b. Control environment c. Accounting standards d. Control activities e. Monitoring

a. Risk assessment b. Control environment d. Control activities e. Monitoring

Select all that apply The two most common sources of occupational fraud are: a. misuse of company resources b. financial statement manipulation c. employee misrepresentation to outside stakeholders d. personal tax evasion

a. misuse of company resources b. financial statement manipulation

Select all that apply Important internal control procedures for employee purchases include: a. reconciliation of credit card statements b. predetermined spending limits for employees c. top management approval for all purchases d. clear rules for purchase authorization

a. reconciliation of credit card statements b. predetermined spending limits for employees d. clear rules for purchase authorization

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? a. sale of land b. sale of inventory c. collection on account receivable d. issuance of common stock e. sale of investments

a. sale of land e. sale of investments

Select all that apply Important internal control procedures for employee purchases include: a. separation of duties b. all disbursements made with top management authorization only c. reconciliation of credit card statements d. clear rules for purchase authorization

a. separation of duties c. reconciliation of credit card statements d. clear rules for purchase authorization

Select all that apply Which of the following items are included in cash? a. Accounts receivable from customers b. Balance in checking accounts c. Checks from customers d. Currency and coins e. Notes receivable from customers

b. Balance in checking accounts c. Checks from customers d. Currency and coins

Select all that apply The two most common sources of occupational fraud are: a. employee misrepresentation to outside stakeholders b. misuse of company resources c. financial statement manipulation d. personal tax evasion

b. misuse of company resources c. financial statement manipulation

Select all that apply A good internal control system for cash would require that those who handle cash should not be involved with a. employee evaluations. b. reconciliation of bank balances. c. management decisions. d. the accounting records.

b. reconciliation of bank balances. d. the accounting records.

A company pays for a purchase with a credit card. What is the effect of this purchase on the accounts? a. Inventory will decrease b. An expense account will decrease c. Accounts payable will increase d. A revenue account will increase

c. Accounts payable will increase

Which of the following items are not included in cash? a. Balance in checking accounts b. Cash in savings account c. Accounts receivable from customers d. Currency and coins

c. Accounts receivable from customers

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true? a. An entry must be made to debit Cash and credit Accounts Payable for $45. b. The bank should be notified, and the bank should correct its records by adding $45 to the company's account. c. An entry must be made to debit Accounts Payable and credit Cash for $45. d. No entry is needed for the reconciling item because it appears on the bank's side of the reconciliation

c. An entry must be made to debit Accounts Payable and credit Cash for $45.

Which of the following is classified as part of the control environment? a. Formal procedures for reporting control deficiencies b. Policies and procedures that help ensure that managements' directives are followed c. Overall ethical tone of the organization with respect to internal control d. Identification and analysis of internal and external risk factors

c. Overall ethical tone of the organization with respect to internal control

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. sale of a building b. payment of utilities c. receipt of interest d. borrowing from bank e. collection from customers

c. receipt of interest e. collection from customers

Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error? a. No entry is required on the company's books. b. Debit cash $900; credit Advertising Expense $900. c. Debit Advertising Expense $2,100; credit cash $2,100. d. Debit Advertising Expense $900; credit Cash $900.

d. Debit Advertising Expense $900; credit Cash $900.

The most common source of occupational fraud is: a. financial statement manipulation b. false advertisement c. employee misrepresentation d. misuse of company resources

d. misuse of company resources

Separation of duties and E-commerce controls are examples of ______ controls. a. detective b. communication c. assurance d. preventive

d. preventive

Fill in the blank The two reasons why companies may issue incorrect financial statements are fraud and __________.

errors

Fill in the blank Internal control components are built on the foundation of the __________ tone established by top management in its control environment.

ethical

Fill in the blank Preparation of a bank __________ helps maintain control of cash accounts.

reconciliation

Cash that is not available for current operations is referred to as __________ cash.

restricted

Match each activity with its classification on the statement of cash flows. Drag and drop application. 1. Purchasing inventory from vendors 2. Signing a long-term promissory note 3. Selling equipment a. Investing Activity b. Financing Activity c. Operating Activity

1. Purchasing inventory from vendors - c. Operating Activity 2. Signing a long-term promissory note - b. Financing Activity 3. Selling equipment - a. Investing Activity

Malik Corp.'s bank statement has an end balance of $50,000. The deposits outstanding were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance? a. $53,000 b. $46,000 c. $54,000 d. $52,000

a. $53,000 Reason: $50,000 + 6,000 - 3,000 = $53,000. The NSF checks are already recorded by the bank.

Select all that apply Which of the following items are included in cash? a. Balance in checking accounts b. Currency and coins c. Checks from customers d. Accounts receivable from customers e. Notes receivable from customers

a. Balance in checking accounts b. Currency and coins c. Checks from customers

Select all that apply Which of the following are cash inflows from financing activities? a. Borrowing from bank b. Collecting from customers c. Receiving dividends d. Purchasing treasury stock e. Issuing stock to investors for cash

a. Borrowing from bank e. Issuing stock to investors for cash

Rollins Corp. purchases inventory by paying the supplier $1,000 with a credit card. Recording this transaction will require which of the following? a. Credit accounts payable $1,000 b. Debit cash $1,000 c. Credit cash $1,000 d. Debit accounts payable $1,000

a. Credit accounts payable $1,000

Select all that apply Which of the following items are included in cash? a. Currency and coins b. Notes receivable from customers c. Accounts receivable from customers d. Balance in checking accounts e. Checks from customers

a. Currency and coins d. Balance in checking accounts e. Checks from customers

Select all that apply Joyce Inc. sells $5,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. Recording the sale would include which of the following? a. Debit Service Fee Expense $150 b. Credit Cash $5,000 c. Credit Sales $5,000 d. Debit Sales $5,000 e. Debit Cash $4,850

a. Debit Service Fee Expense $150 c. Credit Sales $5,000 e. Debit Cash $4,850

In a bank reconciliation, which of the following items does not need to be recorded to adjust the company's cash balance? a. Deposit outstanding b. Bank service charge c. NSF check d. Bank collection of notes receivable

a. Deposit outstanding

Select all that apply Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated? a. Depositing checks into the bank and recording receipts in the accounting records b. Accepting credit cards and accepting cash c. Opening the mail and making a list of checks received d. Opening the mail and deposit of checks in the bank

a. Depositing checks into the bank and recording receipts in the accounting records d. Opening the mail and deposit of checks in the bank

Which of the following is an internal control procedure for cash disbursements? a. Disbursements should be made by check, debit, or credit card. b. Disbursements should be made only at the end of each month. c. Disbursements should be made in cash. d. Disbursements should be made with a cashier's check.

a. Disbursements should be made by check, debit, or credit card.

Select all that apply Which of the following are cash inflows from financing activities? a. Issuance of common stock to investors b. Interest received c. Borrowing from another company and signing a promissory note d. Collection from customers e. Sale of land

a. Issuance of common stock to investors c. Borrowing from another company and signing a promissory note

Select all that apply Which of the following are cash inflows from financing activities? a. Issuance of common stock to investors b. Collection from customers c. Sale of land d. Interest received e. Borrowing from another company and signing a promissory note

a. Issuance of common stock to investors e. Borrowing from another company and signing a promissory note

Select all that apply Which of the following are detective controls? a. Performance reviews b. Proper authorization c. Audits d. Reconciliations e. Physical controls

a. Performance reviews c. Audits d. Reconciliations

Select all that apply Which of the following are provisions included in the Sarbanes-Oxley Act? a. Require auditors to retain work papers for 7 years. b. Require that the SEC audit publicly traded companies. c. Require that audit firms are hired by the audit committee of the board of directors. d. Require that the auditors are responsible for preparing the financial statements.

a. Require auditors to retain work papers for 7 years. c. Require that audit firms are hired by the audit committee of the board of directors.

Select all that apply Which of the following are provisions included in the Sarbanes-Oxley Act? a. Require that audit firms are hired by the audit committee of the board of directors. b. Require that the auditors are responsible for preparing the financial statements. c. Require auditors to retain work papers for 7 years. d. Require that the SEC audit publicly traded companies.

a. Require that audit firms are hired by the audit committee of the board of directors. c. Require auditors to retain work papers for 7 years.

Under the Sarbanes-Oxley Act, who is responsible for the selection of a corporation's auditor? a. The audit committee of the Board of Directors b. Corporate management c. The American Institute of Certified Public Accountants d. The Securities and Exchange Commission

a. The audit committee of the Board of Directors

Select all that apply Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that a. all expenditures are authorized. b. all disbursements are made by check, debit card, or credit card. c. checks are signed by authorized individuals. d. the employee who authorizes the payment should write the check. e. employees in charge of cash receipts are also in charge of cash disbursements.

a. all expenditures are authorized. b. all disbursements are made by check, debit card, or credit card. c. checks are signed by authorized individuals.

Select all that apply Paying by check helps a business to control cash when the ______. (Select all that apply.) a. checks are prenumbered and written sequentially b. checks are deposited only at the company's bank c. check is signed by an authorized manager

a. checks are prenumbered and written sequentially c. check is signed by an authorized manager

Select all that apply Important internal control procedures for employee purchases include: a. clear rules for purchase authorization b. all disbursements made with top management authorization only c. separation of duties d. reconciliation of credit card statements

a. clear rules for purchase authorization c. separation of duties d. reconciliation of credit card statements

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. collection from customers b. receipt of interest c. sale of a building d. payment of utilities e. borrowing from bank

a. collection from customers b. receipt of interest

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. collection from customers b. borrowing from bank c. receipt of interest d. sale of a building e. payment of utilities

a. collection from customers c. receipt of interest

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. collection of an accounts receivable b. interest received on notes receivable c. issuance of common stock d. borrowing from bank e. sale of building

a. collection of an accounts receivable b. interest received on notes receivable

Select all that apply Company employees who make necessary expenditures during the course of their employment may utilize "purchase cards," which may be in the form of: (Select all that apply.) a. credit cards b. debit cards c. promissory notes d. payment vouchers

a. credit cards b. debit cards

Select all that apply Night Corporation establishes a petty cash account for $200. During the month, Night used petty cash to purchase postage for $50 and supplies for $100. At the end of the month, Night recognizes the related expense and replenishes petty cash. The journal entry to replenish petty cash is: a. debit Petty Cash $150 b. debit Petty Cash $50 c. credit Petty Cash $50 d. credit Cash (checking account) $150

a. debit Petty Cash $150 d. credit Cash (checking account) $150

The amount of cash in the balance sheet reflects the a. ending cash on the balance sheet date. b. cash inflows to the company from selling goods and services. c. cash expected to be used in the following year. d. amount of cash spent during the period.

a. ending cash on the balance sheet date.

Select all that apply Which of the following are common controls over cash receipts? (Select all that apply.) a. having two different employees take custody of the checks and make the deposit b. reducing the amount of total sales to customers c. opening mail daily and making a detailed list of checks received d. placing one trusted employee in charge of all cash-related activities

a. having two different employees take custody of the checks and make the deposit c. opening mail daily and making a detailed list of checks received

Select all that apply Which of the following are common controls over cash receipts? a. opening mail daily and making a detailed list of checks received b. reducing the amount of total sales to customers c. placing one trusted employee in charge of all cash-related activities d. having two different employees take custody of the checks and make the deposit

a. opening mail daily and making a detailed list of checks received d. having two different employees take custody of the checks and make the deposit

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. receipt of interest b. collection from customers c. sale of a building d. payment of utilities e. borrowing from bank

a. receipt of interest b. collection from customers

Select all that apply The key provisions of the Sarbanes-Oxley Act include a. requiring that corporate executives certify financial statements. b. restricting activities of auditors to prevent conflicts of interest. c. requiring documentation and assessing effectiveness of internal controls. d. limiting the role of the FASB in accounting standard setting. e. establishing the Securities and Exchange Commission.

a. requiring that corporate executives certify financial statements. b. restricting activities of auditors to prevent conflicts of interest. c. requiring documentation and assessing effectiveness of internal controls.

Select all that apply The key provisions of the Sarbanes-Oxley Act include a. requiring that corporate executives certify financial statements. b. establishing the Securities and Exchange Commission. c. requiring documentation and assessing effectiveness of internal controls. d. limiting the role of the FASB in accounting standard setting. e. restricting activities of auditors to prevent conflicts of interest.

a. requiring that corporate executives certify financial statements. c. requiring documentation and assessing effectiveness of internal controls. e. restricting activities of auditors to prevent conflicts of interest.

Select all that apply The key provisions of the Sarbanes-Oxley Act include a. restricting activities of auditors to prevent conflicts of interest. b. requiring documentation and assessing effectiveness of internal controls. c. limiting the role of the FASB in accounting standard setting. d. establishing the Securities and Exchange Commission. e. requiring that corporate executives certify financial statements.

a. restricting activities of auditors to prevent conflicts of interest. b. requiring documentation and assessing effectiveness of internal controls. e. requiring that corporate executives certify financial statements.

Select all that apply The key provisions of the Sarbanes-Oxley Act include a. restricting activities of auditors to prevent conflicts of interest. b. limiting the role of the FASB in accounting standard setting. c. establishing the Securities and Exchange Commission. d. requiring that corporate executives certify financial statements. e. requiring documentation and assessing effectiveness of internal controls.

a. restricting activities of auditors to prevent conflicts of interest. d. requiring that corporate executives certify financial statements. e. requiring documentation and assessing effectiveness of internal controls.

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? a. sale of investments b. sale of merchandise inventory c. sale of equipment d. sale of building e. borrowing from bank

a. sale of investments c. sale of equipment d. sale of building

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? a. sale of investments b. sale of merchandise inventory c. borrowing from bank d. sale of building e. sale of equipment

a. sale of investments d. sale of building e. sale of equipment

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? a. sale of investments b. sale of inventory c. collection on account receivable d. issuance of common stock e. sale of land

a. sale of investments e. sale of land

Select all that apply Companies commonly restrict cash for which of the following reasons? a. to pay off a large loan when due b. to have cash available for future investment opportunities c. to pay regular accounts payable d. to finance a major purchase of equipment e. to pay employee salaries and wages

a. to pay off a large loan when due b. to have cash available for future investment opportunities d. to finance a major purchase of equipment

Periodically, management should verify that amounts related to the company's physical assets agree with the __________ records.

accounting

Which of the following items are not included in cash? a. Balance in checking accounts b. Accounts receivable from customers c. Cash in savings account d. Currency and coins

b. Accounts receivable from customers

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true? a. An entry must be made to debit Cash and credit Accounts Payable for $45. b. An entry must be made to debit Accounts Payable and credit Cash for $45. c. The bank should be notified, and the bank should correct its records by adding $45 to the company's account. d. No entry is needed for the reconciling item because it appears on the bank's side of the reconciliation

b. An entry must be made to debit Accounts Payable and credit Cash for $45. Reason: The error is on the company's books, so the company must make the correcting entry.

Select all that apply Which of the following items are included in cash? a. Notes receivable from customers b. Checks from customers c. Currency and coins d. Accounts receivable from customers e. Balance in checking accounts

b. Checks from customers c. Currency and coins e. Balance in checking accounts

Rollins Corp. purchases inventory by paying the supplier $1,000 with a credit card. Recording this transaction will require which of the following? a. Debit cash $1,000 b. Credit accounts payable $1,000 c. Credit cash $1,000 d. Debit accounts payable $1,000

b. Credit accounts payable $1,000

Rollins Corp. purchases inventory by paying the supplier $1,000 with a debit card. Recording this transaction will require which of the following? a. Debit cash $1,000 b. Credit cash $1,000 c. Debit accounts payable $1,000 d. Credit accounts payable $1,000

b. Credit cash $1,000

Select all that apply Joyce Inc. sells $5,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. Recording the sale would include which of the following? a. Debit Sales $5,000 b. Debit Cash $4,850 c. Credit Cash $5,000 d. Credit Sales $5,000 e. Debit Service Fee Expense $150

b. Debit Cash $4,850 d. Credit Sales $5,000 e. Debit Service Fee Expense $150

Select all that apply Joyce Inc. sells $5,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. Recording the sale would include which of the following? a. Debit Sales $5,000 b. Debit Service Fee Expense $150 c. Credit Sales $5,000 d. Debit Cash $4,850 e. Credit Cash $5,000

b. Debit Service Fee Expense $150 c. Credit Sales $5,000 d. Debit Cash $4,850

Clem sells $1,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 4% fee on the sale. Recording the sale would include which of the following? a. Debit Sales $1,000 b. Debit Service Fee Expense $40 c. Debit Cash $1,000 d. Debit VISA Payable $40

b. Debit Service Fee Expense $40

Select all that apply Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated? a. Opening the mail and making a list of checks received b. Depositing checks into the bank and recording receipts in the accounting records c. Opening the mail and deposit of checks in the bank d. Accepting credit cards and accepting cash

b. Depositing checks into the bank and recording receipts in the accounting records c. Opening the mail and deposit of checks in the bank

Rice Corp. noticed that a check written by the company for utility expense in the amount of $1,000 was incorrectly recorded by the bank as $1,100. What entry needs to be recorded to correct this error? a. Debit Cash $100; credit Utility Expense $100. b. No entry is required on the company's books. c. Debit Utility Expense $1,100; credit Cash $ 1,100. d. Debit Utility Expense $100; credit Cash $100.

b. No entry is required on the company's books. Reason: This error was made by the bank. Therefore, no entry is required on the company's books. The bank must correct its error.

For internal control purposes, which of the following responsibilities should be separated for cash disbursements? a. Check ordering and check proofreading b. Payment authorization and check preparation c. Check ordering and custody of checks

b. Payment authorization and check preparation

Select all that apply Which of the following are provisions included in the Sarbanes-Oxley Act? a. Require that the auditors are responsible for preparing the financial statements. b. Require that audit firms are hired by the audit committee of the board of directors. c. Require that the SEC audit publicly traded companies. d. Require auditors to retain work papers for 7 years.

b. Require that audit firms are hired by the audit committee of the board of directors. d. Require auditors to retain work papers for 7 years.

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. sale of building b. collection of an accounts receivable c. interest received on notes receivable d. borrowing from bank e. issuance of common stock

b. collection of an accounts receivable c. interest received on notes receivable

Select all that apply The journal entry necessary to establish a petty cash fund is: a. debit expense b. credit cash c. credit petty cash d. debit petty cash e. debit cash f. no journal entry is necessary until cash is expended

b. credit cash d. debit petty cash

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. sale of building b. interest received on notes receivable c. collection of an accounts receivable d. borrowing from bank e. issuance of common stock

b. interest received on notes receivable c. collection of an accounts receivable

Select all that apply Which of the following are cash outflows from investing activities? a. purchase of inventory b. purchase of land c. issuance of common stock d. purchase of investment securities e. payment of employee salaries

b. purchase of land d. purchase of investment securities

Select all that apply Which of the following are cash outflows from investing activities? a. repayment of long-term debt b. purchase of long-term investments c. purchase of building d. purchase of land e. payment of income taxes

b. purchase of long-term investments c. purchase of building d. purchase of land

Select all that apply Which of the following are cash outflows from investing activities? a. payment of income taxes b. purchase of long-term investments c. purchase of land d. purchase of building e. repayment of long-term debt

b. purchase of long-term investments c. purchase of land d. purchase of building

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. borrowing from bank b. receipt of interest c. payment of utilities d. sale of a building e. collection from customers

b. receipt of interest e. collection from customers

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? a. borrowing from bank b. sale of investments c. sale of merchandise inventory d. sale of building e. sale of equipment

b. sale of investments d. sale of building e. sale of equipment

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? a. sale of inventory b. sale of land c. issuance of common stock d. sale of investments e. collection on account receivable

b. sale of land d. sale of investments

Select all that apply Companies commonly restrict cash for which of the following reasons? a. to pay employee salaries and wages b. to finance a major purchase of equipment c. to have cash available for future investment opportunities d. to pay regular accounts payable e. to pay off a large loan when due

b. to finance a major purchase of equipment c. to have cash available for future investment opportunities e. to pay off a large loan when due

Select all that apply Companies commonly restrict cash for which of the following reasons? a. to pay employee salaries and wages b. to have cash available for future investment opportunities c. to pay off a large loan when due d. to finance a major purchase of equipment e. to pay regular accounts payable

b. to have cash available for future investment opportunities c. to pay off a large loan when due d. to finance a major purchase of equipment

In a bank reconciliation, which of the following will require a journal entry by the company? a. Adjustments to the bank balance for items recorded on the books but not yet on the bank statement b. Both the adjustments to the bank balance and adjustments to the cash balance in the accounting records c. Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

c. Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

Who must personally certify the financial statements and company disclosures or risk financial penalties and criminal prosecution for fraudulent misstatements? a. Board of directors of a corporation b. SEC staff auditors c. Corporate executives d. CPA firms who audit the company

c. Corporate executives

In a bank reconciliation, which of the following items does not need to be recorded to adjust the company's cash balance? a. NSF check b. Bank service charge c. Deposit outstanding d. Bank collection of notes receivable

c. Deposit outstanding

Select all that apply Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated? a. Opening the mail and making a list of checks received b. Accepting credit cards and accepting cash c. Depositing checks into the bank and recording receipts in the accounting records d. Opening the mail and deposit of checks in the bank

c. Depositing checks into the bank and recording receipts in the accounting records d. Opening the mail and deposit of checks in the bank

This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation? a. It does not belong on the bank reconciliation. b. It would be deducted from the bank balance. c. It would be added to the company balance. d. It would be added to the bank balance. e. It would be deducted from the company balance.

c. It would be added to the company balance. Reason: The company balance must be increased by the amount of interest earned as reported on the bank statement. The bank balance already includes the interest.

Who has final responsibility for internal controls? a. The FASB b. Auditors c. Management d. The SEC

c. Management

Select all that apply Which of the following are provisions included in the Sarbanes-Oxley Act? a. Require that the SEC audit publicly traded companies. b. Require that the auditors are responsible for preparing the financial statements. c. Require auditors to retain work papers for 7 years. d. Require that audit firms are hired by the audit committee of the board of directors.

c. Require auditors to retain work papers for 7 years. d. Require that audit firms are hired by the audit committee of the board of directors.

Select all that apply Which of the following are provisions included in the Sarbanes-Oxley Act? a. Require that the auditors are responsible for preparing the financial statements. b. Require that the SEC audit publicly traded companies. c. Require auditors to retain work papers for 7 years. d. Require that audit firms are hired by the audit committee of the board of directors.

c. Require auditors to retain work papers for 7 years. d. Require that audit firms are hired by the audit committee of the board of directors.

Select all that apply When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance? a. Deposits outstanding b. Outstanding checks c. Service charges d. Charges for NSF checks

c. Service charges d. Charges for NSF checks

Which of the following occurs when petty cash is used to pay for an item? a. A credit is made to Petty Cash. b. A credit is made to Miscellaneous Expense. c. The receipt or a voucher is placed in the petty cash fund. d. A debit is made to Petty Cash for the amount of the expenditure.

c. The receipt or a voucher is placed in the petty cash fund.

Select all that apply Clancy Corp. establishes a petty cash fund for $200. The entry required is to a. credit Petty Cash $200. b. debit Cash (checking account) $200. c. debit Petty Cash $200. d. credit Miscellaneous Expenses $200. e. debit Miscellaneous Expenses $200. f. credit Cash (checking account) $200.

c. debit Petty Cash $200. f. credit Cash (checking account) $200.

If a bank reconciliation included a deposit outstanding of $670, the company's entry for this reconciling item would include: a. a credit to Cash of $670 b. a debit to Cash of $670 c. nothing; the deposit has already been recorded

c. nothing; the deposit has already been recorded

Select all that apply Which of the following are cash outflows from investing activities? a. purchase of inventory b. issuance of common stock c. purchase of land d. payment of employee salaries e. purchase of investment securities

c. purchase of land e. purchase of investment securities

Klein Company's accountant is unable to reconcile the current year bank and cash account balances. If no cause can be determined to explain this difference, the difference should be a. deferred until the end of the next accounting period. b. recognized as an adjustment to the beginning balance of retained earnings. c. recognized as miscellaneous expense or revenue. d. ignored.

c. recognized as miscellaneous expense or revenue.

Select all that apply The key provisions of the Sarbanes-Oxley Act include a. establishing the Securities and Exchange Commission. b. limiting the role of the FASB in accounting standard setting. c. requiring that corporate executives certify financial statements. d. restricting activities of auditors to prevent conflicts of interest. e. requiring documentation and assessing effectiveness of internal controls.

c. requiring that corporate executives certify financial statements. d. restricting activities of auditors to prevent conflicts of interest. e. requiring documentation and assessing effectiveness of internal controls.

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? a. issuance of common stock b. collection on account receivable c. sale of investments d. sale of inventory e. sale of land

c. sale of investments e. sale of land

Melon Corp. noticed that a check written by the company for $2,100 was incorrectly recorded in the accounting records as $1,200. How should this error be handled in a bank reconciliation? a. $900 should be added to the cash balance in the accounting records. b. $900 should be subtracted from the bank balance. c. $900 should be added to the bank balance. d. $900 should be subtracted from the cash balance in the accounting records.

d. $900 should be subtracted from the cash balance in the accounting records. Reason: The company reduced cash account incorrectly by $1,200 instead of $2,100 so an additional $900 should be subtracted from the company cash account.

Which of the following items are not included in cash? a. Currency and coins b. Cash in savings account c. Balance in checking accounts d. Accounts receivable from customers

d. Accounts receivable from customers

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true? a. An entry must be made to debit Cash and credit Accounts Payable for $45. b. No entry is needed for the reconciling item because it appears on the bank's side of the reconciliation c. The bank should be notified, and the bank should correct its records by adding $45 to the company's account. d. An entry must be made to debit Accounts Payable and credit Cash for $45.

d. An entry must be made to debit Accounts Payable and credit Cash for $45.

Select all that apply Which of the following are cash inflows from financing activities? a. Sale of land b. Interest received c. Collection from customers d. Borrowing from another company and signing a promissory note e. Issuance of common stock to investors

d. Borrowing from another company and signing a promissory note e. Issuance of common stock to investors

Rollins Corp. purchases inventory by paying the supplier $1,000 with a credit card. Recording this transaction will require which of the following? a. Credit cash $1,000 b. Debit accounts payable $1,000 c. Debit cash $1,000 d. Credit accounts payable $1,000

d. Credit accounts payable $1,000

Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error? a. No entry is required on the company's books. b. Debit Advertising Expense $2,100; credit cash $2,100. c. Debit cash $900; credit Advertising Expense $900. d. Debit Advertising Expense $900; credit Cash $900.

d. Debit Advertising Expense $900; credit Cash $900.

Clem sells $1,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 4% fee on the sale. Recording the sale would include which of the following? a. Debit VISA Payable $40 b. Debit Cash $1,000 c. Debit Sales $1,000 d. Debit Service Fee Expense $40

d. Debit Service Fee Expense $40

Select all that apply Which of the following are cash inflows from financing activities? a. Purchasing treasury stock b. Receiving dividends c. Collecting from customers d. Issuing stock to investors for cash e. Borrowing from bank

d. Issuing stock to investors for cash e. Borrowing from bank

This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation? a. It would be added to the bank balance. b. It would be deducted from the bank balance. c. It would be deducted from the company balance. d. It would be added to the company balance. e. It does not belong on the bank reconciliation.

d. It would be added to the company balance.

Under the Sarbanes-Oxley Act, who is responsible for the selection of a corporation's auditor? a. The American Institute of Certified Public Accountants b. Corporate management c. The Securities and Exchange Commission d. The audit committee of the Board of Directors

d. The audit committee of the Board of Directors

Select all that apply Clancy Corp. establishes a petty cash fund for $200. The entry required is to a. credit Miscellaneous Expenses $200. b. debit Miscellaneous Expenses $200. c. credit Petty Cash $200. d. credit Cash (checking account) $200. e. debit Cash (checking account) $200. f. debit Petty Cash $200.

d. credit Cash (checking account) $200. f. debit Petty Cash $200.

Smith Company cannot identify a missing petty cash amount, the amount should be: a. credited to Miscellaneous Expense b. debited to Miscellaneous Revenue c. credited to Miscellaneous Revenue d. debited to Miscellaneous Expense

d. debited to Miscellaneous Expense

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for a. designing fraud-proof accounting system. b. auditing internal control systems. c. preparing useful financial statements. d. designing an internal control system.

d. designing an internal control system.

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. issuance of common stock b. borrowing from bank c. sale of building d. interest received on notes receivable e. collection of an accounts receivable

d. interest received on notes receivable e. collection of an accounts receivable

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as a. general controls. b. security controls. c. corporate regulations. d. internal controls. e. protective controls.

d. internal controls.