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 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.   Increasing pressure of foreign competition for American products and services.
B.   The establishment of the Securities and Exchange Commission (SEC).
C.   Increasing inflation.
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.   Supplies Expense.
B.   Accounts Payable.
C.   Cash.
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.   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.   Employee fraud is less likely to occur when access to assets and access to accounting records are separated.
B.   The company’s financial accountant should not share information with the company’s tax accountant.
C.   The external auditors of the company should have no contact with managers while the audit is taking place.
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.   Retained Earnings is debited.
B.   Expenses are credited.
C.   Accounts Payable is credited.
D.   Cash is debited.
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 ethical tone set by top management.
B.   The risk of failing to achieve company objectives.
C.   Accountability through separation of duties.
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.   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 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 advertising.
B.   Payment for land.
C.   Payment of dividends to stockholders.
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 bank.
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.   Improper asset valuation.
C.   Mismatching revenues and expenses.
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.   Service fees.
B.   NSF checks.
C.   Checks outstanding.
D.   An error by the company.
Question #16
Which of the following generally would not be considered good internal control of cash receipts?
A.   Allowing customers to pay with a credit card.
B.   Allowing customers to pay with a debit card.
C.   Requiring the employee receiving the cash from the customer to also deposit the cash into the company’s bank account.
D.   Recording cash receipts as soon as they are received.
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 on hand to pay for minor purchases.
B.   Cash used to pay employee salaries.
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.   Added to the company’s cash balance.
C.     
D.   Added to 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.   Deposits outstanding.
B.   Interest on bank deposit.
C.   Bank service fees.
D.   NSF check.
E.     
Question #21
When preparing a bank reconciliation, outstanding checks would be:
A.   Subtracted from the bank’s cash balance.
B.   Added to the bank’s cash balance.
C.   Subtracted from the company’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.   Investments with maturity dates greater than three months.
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 used to establish the fund.
B.   The amount of cash withdrawn from the fund during the accounting period.
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, respond quickly to new opportunities and prevent bankruptcy.
B.   Respond quickly to new opportunities.
C.   Maintain normal operations.
D.   Prevent bankruptcy.
Question #25
Which of the following generally would be considered good internal control of cash disbursements?
A.   Make all cash disbursements using cash rather than debit cards or credit cards.
B.   The employee who authorizes payments should also prepare the check.
C.   Set maximum purchase limits on debit cards and 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.   Payment for a new operating equipment.
B.   Repayment of borrowed money.
C.   Payment for employee salaries.
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 auditor–client relations.
C.   Increased regulations related to corporate executive accountability.
D.   Increased regulations related to internal control.
Question #28
Which of the following is considered cash for financial reporting purposes?
A.   Coins and currency.
B.   Debit card sales.
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 received from the issuance of common stock.
B.   Cash received from the sale of a used company truck.
C.   Cash received from a bank loan.
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.   File reports with the Securities and Exchange Commission.
B.   Use either cash or accrual- basis accounting.
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.   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 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.   Ensure checks are serially numbered and signed only by authorized employees.
B.   The employee who authorizes payment should also be the employee who prepares the check.
C.   Require only one signature for larger checks.
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.   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.   Receipt of cash from selling a building.
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.   Interest on bank deposit.
B.   Deposits outstanding.
C.   An error by the bank.
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.   Work more than 40 hours per week.
C.   Personally certify the company’s financial statements.
D.   Hire an independent auditor.
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 a customer.
C.   Cash paid for supplies.
D.   Cash received from the issuance of common stock.

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