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

Need help with your exam preparation?

Existing Quiz Clients Login here
Question #1
What is a direct purpose of internal controls?
A.   To assist top executives in planning employment capacity.
B.   To minimize tax payments to the Internal Revenue Service (IRS).
C.   To improve the accuracy and reliability of accounting information.
D.   To help managers determine which projects are likely to be more profitable.
Question #2
Sarbanes-Oxley Act (SOX) was passed in response to:
A.   Corporate scandals involving unethical behavior of top executives.
B.   Increasing inflation.
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.
B.   Accounts Payable.
C.   Cash.
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 top executives.
C.   The company’s external auditors.
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.   Interest earned.
B.   Deposits outstanding.
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 company’s financial accountant should not share information with the company’s tax accountant.
B.   The external auditors of the company should have no contact with managers while the audit is taking place.
C.   Duties of middle-level managers of the company should be clearly separated from those of top executives.
D.   Employee fraud is less likely to occur when access to assets and access to accounting records are separated.
Question #7
When employee expenditures with company-issued credit cards are recorded:
A.   Expenses are credited.
B.   Cash is debited.
C.   Retained Earnings is debited.
D.   Accounts Payable is credited.
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 reliability of financial information.
B.   Accountability through separation of duties.
C.   The risk of failing to achieve company objectives.
D.   The ethical tone set by top management.
Question #10
Effective internal control over cash includes the requirement that:
A.   The person who makes deposits should NOT record the deposits.
B.   Only checks are used for payment of purchases.
C.   The same person who makes deposits should also record the deposits.
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.   $120,000.00
B.   $50,000.00
C.   $20,000.00
D.   $90,000.00
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.   Accounting errors made by the bank.
B.   Cash theft by the company’s employees.
C.   Accounting errors made by the company.
D.   Timing differences of recording cash transactions by the company and 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.   Fictitious revenues from a fake customer.
C.   Mismatching revenues and expenses.
D.   Improper asset valuation.
Question #15
Which of the following adjusts the bank’s balance of cash in a bank reconciliation?
A.   An error by the company.
B.   Checks outstanding.
C.   NSF checks.
D.   Service fees.
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.   Document and assess internal controls.
B.   File their tax return with the Internal Revenue Service.
C.   Provide healthcare for employees.
D.   Provide financial statements.
Question #18
A company’s petty cash refers to:
A.   Cash used to pay employee salaries.
B.   Investment in short-term securities.
C.   Cash on hand to pay for minor purchases.
D.   Cash held in the bank.
Question #19
When preparing a bank reconciliation, nonsufficient funds (NSF) checks would be:
A.   Added to the company’s cash balance.
B.   Added to the bank’s cash balance.
C.     
D.   Subtracted from the bank’s cash balance.
E.   Subtracted from 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.   Bank service fees.
D.     
E.   Deposits outstanding.
Question #21
When preparing a bank reconciliation, outstanding checks would be:
A.   Subtracted from the company’s cash balance.
B.   Added to the bank’s cash balance.
C.   Subtracted from the bank’s cash balance.
D.   Added to the company’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.   Checks received from customers.
C.   Accounts payable.
D.   Accounts receivable.
Question #23
At any given time, the amount of cash in the petty cash fund should equal:
A.   The amount of cash withdrawn from the fund during the accounting period.
B.   The amount of cash used to establish the fund.
C.   All vouchers written 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.
B.   Maintain normal operations, respond quickly to new opportunities and prevent bankruptcy.
C.   Respond quickly to new opportunities.
D.   Prevent bankruptcy.
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.   Set maximum purchase limits on debit cards and credit cards.
C.   Make all cash disbursements using cash rather than debit cards or credit cards.
D.   The employee responsible for making cash disbursements should be in charge of cash receipts.
Question #26
Operating cash flows would include which of the following?
A.   Services provided to customers on account.
B.   Payment for employee salaries.
C.   Payment for a new operating equipment.
D.   Repayment of borrowed money.
Question #27
The Sarbanes-Oxley Act (SOX) mandates which of the following?
A.   Increased regulations related to corporate executive accountability.
B.   Increased regulations related to internal control.
C.   Increased regulations related to auditor–client relations, increased regulations related to corporate executive accountability and increased regulations related to internal control.
D.   Increased regulations related to auditor–client relations.
Question #28
Which of the following is considered cash for financial reporting purposes?
A.   Debit card sales, checks received from customers and coins and currency.
B.   Coins and currency.
C.   Checks received from customers.
D.   Debit card sales.
Question #29
Operating cash flows include which of the following?
A.   Cash received from a bank loan.
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.
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.   Enacted the Securities and Exchange Commission.
C.   Established the Financial Accounting Standards Board.
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.   File reports with the Securities and Exchange Commission.
C.   Use either cash or accrual- basis accounting.
D.   Use accrual-basis accounting.
Question #33
The purpose of a petty cash fund is to
A.   Allow the company to save cash for major future purchases.
B.   Provide a convenient form of payment for the company’s customers.
C.   Pay employee salaries at the end of each period.
D.   Provide cash on hand for minor expenditures.
Question #34
Managers should act:
A.   As creditors of the company.
B.   As owners of the company.
C.   In their own best interest.
D.   As stewards of the company’s assets.
Question #35
  
A.   Require only one signature for larger checks.
B.   The employee who authorizes payment should also be the employee who prepares the check.
C.   Ensure checks are serially numbered and signed only by authorized employees.
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.   Important documents should be kept in a safe place, and electronic files should be backed up regularly.
B.   Management periodically determines whether the amount of physical assets agree with the accounting records.
C.   Employees should be made aware of the company's internal control policies.
D.   The company should establish formal guidelines to handle cash receipts and make purchases.
Question #37
Operating cash flows would include which of the following?
A.   Receipt of cash from selling a building.
B.   Payment for prepaid insurance.
C.   Payment of dividends to stockholders.
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.   Deposits outstanding.
B.   An error by the bank.
C.   Interest on bank deposit.
D.   Checks outstanding.
Question #39
Corporate executive accountability under the Sarbanes-Oxley Act requires corporate executives to:
A.   Be compensated only when the company is profitable.
B.   Personally certify the company’s financial statements.
C.   Hire an independent auditor.
D.   Work more than 40 hours per week.
Question #40
Investing 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 the sale of a used company truck.
D.   Cash received from a customer.

Need help with your exam preparation?

Existing Quiz Clients Login here