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 help managers determine which projects are likely to be more profitable.
B.   To minimize tax payments to the Internal Revenue Service (IRS).
C.   To assist top executives in planning employment capacity.
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.   Corporate scandals involving unethical behavior of top executives.
C.   The establishment of the Securities and Exchange Commission (SEC).
D.   Increasing inflation.
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 top executives.
B.   The company's board of directors.
C.   The company’s stockholders.
D.   The company’s external auditors.
Question #5
Which of the following adjusts the company’s balance of cash in a bank reconciliation?
A.   Deposits outstanding.
B.   Interest earned.
C.   Checks outstanding.
D.   An error by the bank.
Question #6
What is the concept behind separation of duties in establishing internal control?
A.   Duties of middle-level managers of the company should be clearly separated from those of top executives.
B.   Employee fraud is less likely to occur when access to assets and access to accounting records are separated.
C.   The external auditors of the company should have no contact with managers while the audit is taking place.
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.   Retained Earnings is debited.
B.   Accounts Payable is credited.
C.   Cash is debited.
D.   Expenses are credited.
Question #8
Which of the following is considered cash for financial reporting purposes?
A.   Amounts held in checking accounts.
B.   Prepaid insurance.
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.   Only checks are used for payment of purchases and the same person who makes deposits should also 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.   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.   $120,000.00
C.   $20,000.00
D.   $90,000.00
Question #12
Investing cash flows would include which of the following?
A.   Payment of dividends to stockholders.
B.   Payment for advertising.
C.   Payment for land.
D.   Cash sales to customers.
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.   Cash theft by the company’s employees.
B.   Accounting errors made by the company.
C.   Accounting errors made by the bank.
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.
B.   Mismatching revenues and expenses.
C.   Fictitious revenues from a fake customer.
D.   Improper asset valuation, fictitious revenues from a fake customer and mismatching revenues and expenses.
Question #15
Which of the following adjusts the bank’s balance of cash in a bank reconciliation?
A.   NSF checks.
B.   An error by the company.
C.   Checks outstanding.
D.   Service fees.
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.   Recording cash receipts as soon as they are received.
C.   Allowing customers to pay with a credit card.
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 held in the bank.
C.   Cash used to pay employee salaries.
D.   Investment in short-term securities.
Question #19
When preparing a bank reconciliation, nonsufficient funds (NSF) checks would be:
A.   Subtracted from the bank’s cash balance.
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.     
Question #20
Which of the following adjusts the bank’s balance of cash in a bank reconciliation?
A.     
B.   NSF check.
C.   Bank service fees.
D.   Interest on bank deposit.
E.   Deposits outstanding.
Question #21
When preparing a bank reconciliation, outstanding checks would be:
A.   Added to the bank’s cash balance.
B.   Added to the company’s cash balance.
C.   Subtracted from the company’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.   The established balance of the fund less all vouchers written during the accounting period.
C.   All vouchers written during the accounting period.
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.   Services provided to customers on account.
B.   Payment for a new operating equipment.
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 auditor–client relations.
B.   Increased regulations related to corporate executive accountability.
C.   Increased regulations related to internal control.
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.
B.   Coins and currency.
C.   Checks received from customers.
D.   Debit card sales, checks received from customers and coins and currency.
Question #29
Operating cash flows include which of the following?
A.   Cash paid for supplies.
B.   Cash received from a bank loan.
C.   Cash received from the issuance of common stock.
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 sale of a used company truck.
B.   Cash paid for supplies.
C.   Cash received from a customer.
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.   Established the Financial Accounting Standards Board.
B.   Organized the Internal Revenue Service.
C.   Enacted the Securities and Exchange Commission.
D.   Passed the Sarbanes-Oxley Act.
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.   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.   As creditors of the company.
C.   In their own best interest.
D.   As owners of the company.
Question #35
  
A.   Employees responsible for making cash disbursements should also be in charge of cash receipts.
B.   The employee who authorizes payment should also be the employee who prepares the check.
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.   The company should establish formal guidelines to handle cash receipts and make purchases.
B.   Employees should be made aware of the company's internal control policies.
C.   Management periodically determines whether the amount of physical assets agree with the accounting records.
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 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.   Checks outstanding.
B.   Interest on bank deposit.
C.   Deposits outstanding.
D.   An error by the bank.
Question #39
Corporate executive accountability under the Sarbanes-Oxley Act requires corporate executives to:
A.   Work more than 40 hours per week.
B.   Be compensated only when the company is profitable.
C.   Hire an independent auditor.
D.   Personally certify the company’s financial statements.
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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