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1 | |
The term “accounting controls” refers to those internal controls that (LO 1) |
| | A) | Safeguard assets and ensure records contain reliable information |
| | B) | Guarantee accurate information |
| | C) | Are designed to evaluate performance of employees |
| | D) | Safeguard assets and assure compliance with laws and regulations |
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2 | |
Administrative controls are internal controls concerned with (LO 1) |
| | A) | Ensuring employee accuracy |
| | B) | Promoting employee honesty |
| | C) | Evaluating employee performance |
| | D) | Preventing employees from divulging confidential information |
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3 | |
Which of the following internal control procedures is least likely to be used in a restaurant? (LO 1) |
| | A) | Every customer is provided with a prenumbered receipt |
| | B) | Cash registers are balanced weekly |
| | C) | Only one person is allowed to use the cash register |
| | D) | Employees working the cash registers are bonded |
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4 | |
A company receives numerous checks in the mail every day. Which of the following would be a weak internal control procedure for this company? (LO 1) |
| | A) | All employees are required to take vacations. |
| | B) | The person opening the mail prepares a duplicate deposit slip. |
| | C) | The person opening the mail records the cash receipts to the customer account receivables. |
| | D) | The person who makes the bank deposit does not perform the bank account reconciliation. |
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5 | |
Which of the following is an incorrect statement related to internal controls? (LO 1) |
| | A) | Business should prepare an authority manual that guides both specific and general authorizations. |
| | B) | A good system of internal controls is designed to eliminate errors and fraud. |
| | C) | Employees should be properly trained to perform their jobs. |
| | D) | Unannounced physical counts should be conducted to verify the presence of company-owned equipment. |
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6 | |
For financial reporting purposes, cash generally includes all of the following except-- (LO 2) |
| | A) | Currency |
| | B) | Bank drafts |
| | C) | Money orders |
| | D) | Certificates of deposit |
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7 | |
Which of the following procedure is not usually associated with the protection of cash? (LO 2) |
| | A) | Making all disbursements using checks rather than cash. |
| | B) | Marking “paid” on all supporting documents when the check is signed. |
| | C) | Using prenumbered checks. |
| | D) | Having one person approve, sign, and record checks. |
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8 | |
Which of the following items is added to a company’s unadjusted book balance to determine the true cash balance? (LO 3) |
| | A) | Deposits in transit. |
| | B) | Outstanding checks. |
| | C) | Debit memo for the monthly bank service charge. |
| | D) | Credit memo for the collection of the company’s accounts receivable by the bank. |
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9 | |
Which of the following items is subtracted from the unadjusted bank balance to determine the company’s true cash balance? (LO 3) |
| | A) | Deposits in transit. |
| | B) | Outstanding checks. |
| | C) | Debit memo for the monthly bank service charge. |
| | D) | Credit memo for the collection of the company’s accounts receivable by the bank. |
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10 | |
Which of the following items is subtracted from a company’s unadjusted book balance to determine the true cash balance? (LO 3) |
| | A) | Interest earned on the company’s checking account. |
| | B) | A check deducted from the company’s bank account by the bank in error. |
| | C) | A customer NSF check. |
| | D) | All of the above are subtracted to arrive at the true cash balance. |
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11 | |
Thompson Company had the following information related to its bank and book balances at November 30, 2005 . What is the company's true cash balance on this date? (LO 3) Unadjusted bank balance | $ 8,000 | Unadjusted book balance | 7,445 | Outstanding checks | 1,500 | Deposits in transit | 920 | Debit memo for bank service charge | 35 | Credit memo for interest earned | 10 |
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| | A) | $6,840 |
| | B) | $7,395 |
| | C) | $7,420 |
| | D) | $8,000 |
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12 | |
Hardy Company's accountant accidentally transposed two numbers when recording a check for a cash purchase of merchandise inventory. The check was written for $425 but was recorded as $452. What entry is required to correct this recording error? (LO 3) | | | Debit | Credit | | a. | Cash | 27 | | | | Error Expense
| | 27 | | b. | Error Expense | 27 | | | | Cash
| | 27 | | c. | Cash | 27 | | | | Merchandise Inventory
| | 27 | | d. | Merchandise Inventory | 27 | | | | Cash
| | 27 |
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| | A) | | | | Debit | Credit | | a. | Cash | 27 | | | | Error Expense
| | 27 |
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| | B) | | | | Debit | Credit | | b. | Error Expense | 27 | | | | Cash
| | 27 |
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| | C) | | | | Debit | Credit | | c. | Cash | 27 | | | | Merchandise Inventory
| | 27 |
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| | D) | | | | Debit | Credit | | d. | Merchandise Inventory | 27 | | | | Cash
| | 27 |
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13 | |
Jackson Company accepted a check for $1,825 from a customer for a cash purchase of merchandise. The customer did not have sufficient funds to cover the check and the bank adjusted the company's account for the amount of the returned check. What entry is required to record this NSF check? (LO 3) | | | Debit | Credit | | a. | NSF Check Expense | 1,825 | | | | Cash
| | 1,825 | | b. | Sales Revenue | 1,825 | | | | Cash
| | 1,825 | | c. | Cash | 1,825 | | | | Sales Revenue
| | 1,825 | | d. | Accounts Receivable | 1,825 | | | | Cash
| | 1,825 |
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| | A) | | | | Debit | Credit | | a. | NSF Check Expense | 1,825 | | | | Cash
| | 1,825 |
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| | B) | | | | Debit | Credit | | b. | Sales Revenue | 1,825 | | | | Cash
| | 1,825 |
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| | C) | | | | Debit | Credit | | c. | Cash | 1,825 | | | | Sales Revenue
| | 1,825 |
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| | D) | | | | Debit | Credit | | d. | Accounts Receivable | 1,825 | | | | Cash
| | 1,825 |
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14 | |
Which of the following is an incorrect statement regarding a petty cash fund? (LO 4) |
| | A) | A petty cash fund is controlled by a petty cash custodian. |
| | B) | Petty cash funds are maintained on an imprest basis. |
| | C) | A petty cash fund is often used for small cash disbursements. |
| | D) | A journal entry is made in the accounting records each time the petty cash funds are disbursed. |
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15 | |
Walker Company established a petty cash fund with $500 cash. Which of the following choices accurately reflects how this event would affect the company's financial statements? (LO 4) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | a. | | + – | | n/a | | n/a | | n/a | | + | | – | | – OA | | b. | | + – | | n/a | | n/a | | n/a | | n/a | | n/a | | – OA | | c. | | + – | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | d. | | – | | n/a | | – | | n/a | | + | | – | | – OA | |
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| | A) | a. | | + – | | n/a | | n/a | | n/a | | + | | – | | – OA | |
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| | B) | b. | | + – | | n/a | | n/a | | n/a | | n/a | | n/a | | – OA | |
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| | C) | c. | | + – | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | |
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| | D) | |
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16 | |
On September 1, Rickman Company established a petty cash fund with $300 cash. A physical count of the petty cash fund on September 30 disclosed $93 in currency and coins. The petty cash vouchers are sorted as follows: Employee meals | $ 35.00 | Postage | 56.00 | Office supplies | 119.00 |
What is the amount of the petty cash fund replenishment on September 30? (LO 4) |
| | A) | $ 93 |
| | B) | $207 |
| | C) | $210 |
| | D) | $300 |
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17 | |
Johnson Company replenished its petty cash fund with $425. Which of the following choices accurately reflects how this event would affect the company's financial statements? (LO 4) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | a. | | + – | | n/a | | n/a | | n/a | | + | | – | | n/a | | b. | | – | | n/a | | – | | n/a | | + | | – | | – OA | | c. | | – | | n/a | | – | | n/a | | + | | – | | n/a | | d. | | + – | | n/a | | n/a | | n/a | | + | | – | | – OA | |
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| | A) | a. | | + – | | n/a | | n/a | | n/a | | + | | – | | n/a | |
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| | C) | |
| | D) | d. | | + – | | n/a | | n/a | | n/a | | + | | – | | – OA | |
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18 | |
Use the following selected financial statement information for Rocky Company to answer questions 18 and 19. Cash | $ 40,000 | Prepaid insurance | 15,000 | Retained earnings | 125,000 | Inventory | 75,000 | Unearned revenue | 20,000 | Salary expense | 75,000 | Depreciation expense | 25,000 | Property, plant, and equipment | 450,000 | Accumulated depreciation | 90,000 | Accounts payable | 100,000 | Long-term notes payable (due in 5 years) | 275,000 | Sales revenue | 418,000 | Salaries payable | 5,000 | Common stock | 50,000 | Accounts receivable | 85,000 | Cost of goods sold | 220,000 |
What is the amount of Rocky Company’s total current assets? (LO 5) |
| | A) | $140,000 |
| | B) | $200,000 |
| | C) | $215,000 |
| | D) | $575,000 |
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19 | |
What is the amount of Rocky Company’s total current liabilities? (LO 5) |
| | A) | $100,000 |
| | B) | $105,000 |
| | C) | $125,000 |
| | D) | $400,000 |
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20 | |
Using the following financial statement information, determine Madison Company's current ratio. (LO 6) Current assets | $ 150,000 | Noncurrent assets | 400,000 | Total assets | $ 550,000 | | | Current liabilities | 125,000 | Long-term liabilities | 156,000 | Total liabilities | 281,000 | | | Stockholders' equity | 269,000 | Total liabilities and stockholders' equity | $ 550,000 |
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| | A) | 1.00 |
| | B) | 1.20 |
| | C) | 1.44 |
| | D) | 4.40 |
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21 | |
Which of the following is a correct statement? (LO 5, LO 6) |
| | A) | Liquidity is the ability to repay liabilities in the long run. |
| | B) | A low current ratio suggests that the company having difficulty paying its short-term obligations. |
| | C) | An operating cycle is defined as the average time it takes a business to convert cash to accounts receivable. |
| | D) | Solvency describes the ability to generate sufficient short-term cash flows to pay obligations as they become due. |
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