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 assist top executives in planning employment capacity.
B.   To help managers determine which projects are likely to be more profitable.
C.   To improve the accuracy and reliability of accounting information.
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.   The establishment of the Securities and Exchange Commission (SEC).
C.   Increasing pressure of foreign competition for American products and services.
D.   Corporate scandals involving unethical behavior of top executives.
Question #3
Employee purchases of supplies with a company-issued credit card is typically recorded with a credit to
A.   Cash.
B.   Supplies Expense.
C.   Accounts Payable.
D.   Supplies.
Question #4
Who is ultimately responsible for the establishment and success of a company’s internal control system?
A.   The company’s top executives.
B.   The company's board of directors.
C.   The company’s external auditors.
D.   The company’s stockholders.
Question #5
Which of the following adjusts the company’s balance of cash in a bank reconciliation?
A.   Interest earned.
B.   An error by the bank.
C.   Checks outstanding.
D.   Deposits 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.   Duties of middle-level managers of the company should be clearly separated from those of top executives.
C.   Employee fraud is less likely to occur when access to assets and access to accounting records are separated.
D.   The company’s financial accountant should not share information with the company’s tax accountant.
Question #7
When employee expenditures with company-issued credit cards are recorded:
A.   Accounts Payable is credited.
B.   Expenses are credited.
C.   Retained Earnings is debited.
D.   Cash 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.   Prepaid insurance.
D.   Amounts held in checking accounts.
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 ethical tone set by top management.
C.   The reliability of financial information.
D.   The risk of failing to achieve company objectives.
Question #10
Effective internal control over cash includes the requirement that:
A.   The same person who makes deposits should also record the deposits.
B.   The person who makes deposits should NOT 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.   $50,000.00
B.   $20,000.00
C.   $120,000.00
D.   $90,000.00
Question #12
Investing cash flows would include which of the following?
A.   Cash sales to customers.
B.   Payment for land.
C.   Payment of dividends to stockholders.
D.   Payment for advertising.
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.   Improper asset valuation.
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.   Checks outstanding.
B.   An error by the company.
C.   Service fees.
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 healthcare for employees.
D.   Provide financial statements.
Question #18
A company’s petty cash refers to:
A.   Cash on hand to pay for minor purchases.
B.   Cash used to pay employee salaries.
C.   Cash held in the bank.
D.   Investment in short-term securities.
Question #19
When preparing a bank reconciliation, nonsufficient funds (NSF) checks would be:
A.     
B.   Added to the company’s cash balance.
C.   Added to the bank’s cash balance.
D.   Subtracted from the company’s cash balance.
E.   Subtracted from the bank’s cash balance.
Question #20
Which of the following adjusts the bank’s balance of cash in a bank reconciliation?
A.   Bank service fees.
B.   Interest on bank deposit.
C.   Deposits outstanding.
D.     
E.   NSF check.
Question #21
When preparing a bank reconciliation, outstanding checks would be:
A.   Added to the bank’s cash balance.
B.   Subtracted from the company’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.   Accounts payable.
B.   Checks received from customers.
C.   Accounts receivable.
D.   Investments with maturity dates greater than three months.
Question #23
At any given time, the amount of cash in the petty cash fund should equal:
A.   All vouchers written during the accounting period.
B.   The amount of cash withdrawn from the fund during the accounting period.
C.   The amount of cash used to establish the fund.
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.   Prevent bankruptcy.
C.   Respond quickly to new opportunities.
D.   Maintain normal operations.
Question #25
Which of the following generally would be considered good internal control of cash disbursements?
A.   Set maximum purchase limits on debit cards and credit cards.
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.   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.   Repayment of borrowed money.
B.   Services provided to customers on account.
C.   Payment for employee salaries.
D.   Payment for a new operating equipment.
Question #27
The Sarbanes-Oxley Act (SOX) mandates which of the following?
A.   Increased regulations related to internal control.
B.   Increased regulations related to corporate executive accountability.
C.   Increased regulations related to auditor–client relations.
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.   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 the issuance of common stock.
B.   Cash received from a bank loan.
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 a customer.
C.   Cash received from the sale of a used company truck.
D.   Cash received from the issuance of common stock.
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.   Use either cash or accrual- basis accounting.
B.   File reports with the Securities and Exchange Commission.
C.   Use accrual-basis accounting.
D.   File their tax return with the Internal Revenue Service.
Question #33
The purpose of a petty cash fund is to
A.   Allow the company to save cash for major future purchases.
B.   Provide cash on hand for minor expenditures.
C.   Pay employee salaries at the end of each period.
D.   Provide a convenient form of payment for the company’s customers.
Question #34
Managers should act:
A.   As stewards of the company’s assets.
B.   As owners of the company.
C.   In their own best interest.
D.   As creditors of the company.
Question #35
  
A.   Ensure checks are serially numbered and signed only by authorized employees.
B.   Employees responsible for making cash disbursements should also be in charge of cash receipts.
C.   The employee who authorizes payment should also be the employee who prepares the check.
D.   Require only one signature for larger checks.
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.   Employees should be made aware of the company's internal control policies.
D.   Important documents should be kept in a safe place, and electronic files should be backed up regularly.
Question #37
Operating cash flows would include which of the following?
A.   Receipt of cash from bank borrowing.
B.   Payment of dividends to stockholders.
C.   Receipt of cash from selling a building.
D.   Payment for prepaid insurance.
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.   Checks outstanding.
D.   Interest on bank deposit.
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 the sale of a used company truck.
B.   Cash received from the issuance of common stock.
C.   Cash paid for supplies.
D.   Cash received from a customer.

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