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

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