Accounting 101 - Financial Accounting » Spring 2021 » Chapter 4 Quiz

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Question #1
What is a direct purpose of internal controls?
A.   To improve the accuracy and reliability of accounting information.
B.   To assist top executives in planning employment capacity.
C.   To help managers determine which projects are likely to be more profitable.
D.   To minimize tax payments to the Internal Revenue Service (IRS).
Question #2
Sarbanes-Oxley Act (SOX) was passed in response to:
A.   Increasing inflation.
B.   Corporate scandals involving unethical behavior of top executives.
C.   The establishment of the Securities and Exchange Commission (SEC).
D.   Increasing pressure of foreign competition for American products and services.
Question #3
Employee purchases of supplies with a company-issued credit card is typically recorded with a credit to
A.   Supplies Expense.
B.   Supplies.
C.   Accounts Payable.
D.   Cash.
Question #4
Who is ultimately responsible for the establishment and success of a company’s internal control system?
A.   The company’s external auditors.
B.   The company’s top executives.
C.   The company's board of directors.
D.   The company’s stockholders.
Question #5
Which of the following adjusts the company’s balance of cash in a bank reconciliation?
A.   Deposits outstanding.
B.   An error by the bank.
C.   Checks outstanding.
D.   Interest earned.
Question #6
What is the concept behind separation of duties in establishing internal control?
A.   Employee fraud is less likely to occur when access to assets and access to accounting records are separated.
B.   Duties of middle-level managers of the company should be clearly separated from those of top executives.
C.   The company’s financial accountant should not share information with the company’s tax accountant.
D.   The external auditors of the company should have no contact with managers while the audit is taking place.
Question #7
When employee expenditures with company-issued credit cards are recorded:
A.   Accounts Payable is credited.
B.   Cash is debited.
C.   Expenses are credited.
D.   Retained Earnings is debited.
Question #8
Which of the following is considered cash for financial reporting purposes?
A.   Credit card purchases.
B.   Investments in a 6-month Certificate of Deposit.
C.   Amounts held in checking accounts.
D.   Prepaid insurance.
Question #9
Consistent with the COSO framework, an effective internal control system includes the control environment. The control environment refers to:
A.   Accountability through separation of duties.
B.   The risk of failing to achieve company objectives.
C.   The ethical tone set by top management.
D.   The reliability of financial information.
Question #10
Effective internal control over cash includes the requirement that:
A.   The person who makes deposits should NOT record the deposits.
B.   The same person who makes deposits should also record the deposits.
C.   Only checks are used for payment of purchases.
D.   Only checks are used for payment of purchases and the same person who makes deposits should also record the deposits.
Question #11
At the end of the previous year, a company’s balance sheet reports cash of $30,000. For the current year, the company’s statement of cash flows reports operating cash inflows of $90,000; investing outflows of $110,000; and financing inflows of $40,000. What amount of cash will be reported in the current year’s balance sheet?
A.   $20,000.00
B.   $90,000.00
C.   $120,000.00
D.   $50,000.00
Question #12
Investing cash flows would include which of the following?
A.   Payment for land.
B.   Cash sales to customers.
C.   Payment for advertising.
D.   Payment of dividends to stockholders.
Question #13
The primary reason the balance of cash in the company’s records will differ from the balance of cash in the bank’s records includes:
A.   Timing differences of recording cash transactions by the company and by the bank.
B.   Accounting errors made by the company.
C.   Cash theft by the company’s employees.
D.   Accounting errors made by the bank.
Question #14
Fraudulent reporting by management could include
A.   Improper asset valuation, fictitious revenues from a fake customer and mismatching revenues and expenses.
B.   Mismatching revenues and expenses.
C.   Improper asset valuation.
D.   Fictitious revenues from a fake customer.
Question #15
Which of the following adjusts the bank’s balance of cash in a bank reconciliation?
A.   Checks outstanding.
B.   Service fees.
C.   An error by the company.
D.   NSF checks.
Question #16
Which of the following generally would not be considered good internal control of cash receipts?
A.   Allowing customers to pay with a debit card.
B.   Allowing customers to pay with a credit card.
C.   Recording cash receipts as soon as they are received.
D.   Requiring the employee receiving the cash from the customer to also deposit the cash into the company’s bank account.
Question #17
Section 404 of the Sarbanes-Oxley Act requires companies to:
A.   File their tax return with the Internal Revenue Service.
B.   Document and assess internal controls.
C.   Provide financial statements.
D.   Provide healthcare for employees.
Question #18
A company’s petty cash refers to:
A.   Cash used to pay employee salaries.
B.   Cash on hand to pay for minor purchases.
C.   Investment in short-term securities.
D.   Cash held in the bank.
Question #19
When preparing a bank reconciliation, nonsufficient funds (NSF) checks would be:
A.   Subtracted from the bank’s cash balance.
B.     
C.   Subtracted from the company’s cash balance.
D.   Added to the bank’s cash balance.
E.   Added to the company’s cash balance.
Question #20
Which of the following adjusts the bank’s balance of cash in a bank reconciliation?
A.   Deposits outstanding.
B.   Bank service fees.
C.   NSF check.
D.     
E.   Interest on bank deposit.
Question #21
When preparing a bank reconciliation, outstanding checks would be:
A.   Subtracted from the company’s cash balance.
B.   Added to the company’s cash balance.
C.   Added to the bank’s cash balance.
D.   Subtracted from the bank’s cash balance.
Question #22
Which of the following is considered cash for financial reporting purposes?
A.   Investments with maturity dates greater than three months.
B.   Accounts receivable.
C.   Checks received from customers.
D.   Accounts payable.
Question #23
At any given time, the amount of cash in the petty cash fund should equal:
A.   The amount of cash used to establish the fund.
B.   All vouchers written during the accounting period.
C.   The amount of cash withdrawn from the fund during the accounting period.
D.   The established balance of the fund less all vouchers written during the accounting period.
Question #24
A company’s ratio of cash to noncash assets provides some indication of the company’s ability to:
A.   Maintain normal operations, respond quickly to new opportunities and prevent bankruptcy.
B.   Respond quickly to new opportunities.
C.   Prevent bankruptcy.
D.   Maintain normal operations.
Question #25
Which of the following generally would be considered good internal control of cash disbursements?
A.   The employee who authorizes payments should also prepare the check.
B.   The employee responsible for making cash disbursements should be in charge of cash receipts.
C.   Make all cash disbursements using cash rather than debit cards or credit cards.
D.   Set maximum purchase limits on debit cards and credit cards.
Question #26
Operating cash flows would include which of the following?
A.   Payment for a new operating equipment.
B.   Services provided to customers on account.
C.   Repayment of borrowed money.
D.   Payment for employee salaries.
Question #27
The Sarbanes-Oxley Act (SOX) mandates which of the following?
A.   Increased regulations related to internal control.
B.   Increased regulations related to auditor–client relations.
C.   Increased regulations related to corporate executive accountability.
D.   Increased regulations related to auditor–client relations, increased regulations related to corporate executive accountability and increased regulations related to internal control.
Question #28
Which of the following is considered cash for financial reporting purposes?
A.   Checks received from customers.
B.   Coins and currency.
C.   Debit card sales, checks received from customers and coins and currency.
D.   Debit card sales.
Question #29
Operating cash flows include which of the following?
A.   Cash received from the issuance of common stock.
B.   Cash paid for supplies.
C.   Cash received from a bank loan.
D.   Cash received from the sale of a used company truck.
Question #30
Financing cash flows would include which of the following?
A.   Cash received from the issuance of common stock.
B.   Cash received from a customer.
C.   Cash received from the sale of a used company truck.
D.   Cash paid for supplies.
Question #31
In response to widespread fraudulent reporting in the late 1990’s and early 2000’s, Congress:
A.   Enacted the Securities and Exchange Commission.
B.   Organized the Internal Revenue Service.
C.   Established the Financial Accounting Standards Board.
D.   Passed the Sarbanes-Oxley Act.
Question #32
The Sarbanes-Oxley Act of 2002 applies to all companies that:
A.   File their tax return with the Internal Revenue Service.
B.   Use either cash or accrual- basis accounting.
C.   File reports with the Securities and Exchange Commission.
D.   Use accrual-basis accounting.
Question #33
The purpose of a petty cash fund is to
A.   Provide cash on hand for minor expenditures.
B.   Allow the company to save cash for major future purchases.
C.   Provide a convenient form of payment for the company’s customers.
D.   Pay employee salaries at the end of each period.
Question #34
Managers should act:
A.   As stewards of the company’s assets.
B.   In their own best interest.
C.   As owners of the company.
D.   As creditors of the company.
Question #35
Which of the following generally would be considered a good internal control over cash payments?
A.   Ensure checks are serially numbered and signed only by authorized employees.
B.   Require only one signature for larger checks.
C.   The employee who authorizes payment should also be the employee who prepares the check.
D.   Employees responsible for making cash disbursements should also be in charge of cash receipts.
Question #36
Which of the following is an example of detective controls?
A.   Employees should be made aware of the company's internal control policies.
B.   Important documents should be kept in a safe place, and electronic files should be backed up regularly.
C.   The company should establish formal guidelines to handle cash receipts and make purchases.
D.   Management periodically determines whether the amount of physical assets agree with the accounting records.
Question #37
Operating cash flows would include which of the following?
A.   Receipt of cash from bank borrowing.
B.   Payment for prepaid insurance.
C.   Payment of dividends to stockholders.
D.   Receipt of cash from selling a building.
Question #38
Which of the following adjusts the company’s balance of cash in a bank reconciliation?
A.   An error by the bank.
B.   Deposits outstanding.
C.   Interest on bank deposit.
D.   Checks outstanding.
Question #39
Corporate executive accountability under the Sarbanes-Oxley Act requires corporate executives to:
A.   Personally certify the company’s financial statements.
B.   Be compensated only when the company is profitable.
C.   Work more than 40 hours per week.
D.   Hire an independent auditor.
Question #40
Investing cash flows include which of the following?
A.   Cash received from the issuance of common stock.
B.   Cash received from a customer.
C.   Cash paid for supplies.
D.   Cash received from the sale of a used company truck.

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