40. Which of the following is not one of the main factors that contribute to fraudulent activity?
a. Opportunity.
b. Incompatible duties.
c. Financial pressure.
d. Rationalization.
B
41. All of the following requirements about internal controls were enacted under the Sarbanes Oxley Act except
a. independent outside auditors must attest to the level of internal control.
b. companies must develop sound internal controls over financial reporting.
c. companies must continually assess the functionality of internal controls.
d. independent outside auditors must eliminate redundant internal controls.
D
42. Which one of the following is not an objective of a system of internal controls?
a. Safeguard company assets.
b. Overstate liabilities in order to be conservative.
c. Enhance the accuracy and reliability of accounting records.
d. Reduce the risks of errors.
B
43. Which one of the following is not an objective of a system of internal controls?
a. Safeguard company assets.
b. Enhance the accuracy and reliability of accounting records.
c. Fairness of the financial statements.
d. Reduce the risks of errors.
C
44. All of the following are examples of internal control procedures except
a. using prenumbered documents.
b. reconciling the bank statement.
c. customer satisfaction surveys.
d. insistence that employees take vacations.
C
45. Each of the following is a feature of internal control except
a. an extensive marketing plan.
b. bonding of employees.
c. separation of duties.
d. recording of all transactions.
A
46. Each of the following is a feature of internal control except
a. limited access to assets.
b. independent internal verifications.
c. authorization of transactions.
d. generic design of documents.
D
47. Which of the following is not a limitation of internal control?
a. Cost of establishing control procedures should not exceed their benefit.
b. The human element.
c. Collusion.
d. The size of the company.
C
48. Internal controls are concerned with
a. only manual systems of accounting.
b. the extent of government regulations.
c. safeguarding assets.
d. preparing income tax returns.
C
49. Internal control is defined, in part, as a plan that safeguards
a. all balance sheet accounts.
b. assets.
c. liabilities.
d. capital stock.
B
50. Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?
a. Everyone in the organization.
b. An individual and his/her supervisor.
c. Only one individual.
d. The CEO.
C
51. Internal controls are not designed to safeguard assets from
a. natural disasters.
b. employee theft.
c. robbery.
d. unauthorized use.
A
52. Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them
a. increases the potential for errors and fraud.
b. decreases the potential for errors and fraud.
c. is an example of good internal control.
d. is a good example of safeguarding the company’s assets.
A
53. The custodian of a company asset should
a. have access to the accounting records for that asset.
b. be someone outside the company.
c. not have access to the accounting records for that asset.
d. be an accountant.
C
54. Internal auditors
a. are hired by CPA firms to audit business firms.
b. are employees of the IRS who evaluate the internal controls of companies filing tax returns.
c. evaluate the system of internal controls for the companies that employ them.
d. cannot evaluate the system of internal controls of the company that employs them because they are not independent.
C
55. When two or more people get together for the purpose of circumventing prescribed controls, it is called
a. a fraud committee.
b. collusion.
c. a division of duties.
d. bonding of employees.
B
56. From an internal control standpoint, the asset most susceptible to improper diversion and use is
a. prepaid insurance.
b. cash.
c. buildings.
d. land.
B
57. A traditional definition of internal control specifically includes all of the following features except
a. adherence to prescribed managerial policies.
b. promotion of operational efficiency.
c. reliability of accounting data.
d. insistence that employees not take earned vacations.
D
58. A consequence of separation of duties is that
a. theft by employees becomes impossible.
b. operations become extremely inefficient because of constant training of employees.
c. more employees will need to be bonded.
d. theft is still possible when several employees are involved.
D
59. A very small company would have the most difficulty in implementing which of the following internal control activities?
a. Separation of duties.
b. Limited access to assets.
c. Periodic independent verification.
d. Sound personnel procedures.
A
60. The principle of establishing responsibility does not include
a. one person being responsible for one task.
b. authorization of transactions.
c. independent internal verification.
d. approval of transactions.
C
61. The control principle related to not having the same person authorize and pay for goods is known as
a. establishment of responsibility.
b. independent internal verification.
c. separation of duties.
d. rotation of duties.
C
62. Two individuals at a retail store work the same cash register. You evaluate this situation as
a. a violation of establishment of responsibility.
b. a violation of separation of duties.
c. supporting the establishment of responsibility.
d. supporting internal independent verification.
A
63. An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of
a. establishment of responsibility is violated.
b. independent internal verification is violated.
c. documentation procedures is violated.
d. separation of duties is violated.
D
64. Related selling activities do not include
a. ordering the merchandise.
b. making a sale.
c. shipping the goods.
d. billing the customer.
A
65. Related purchasing activities include
a. ordering, receiving, paying.
b. ordering, selling, paying.
c. ordering, shipping, billing.
d. selling, shipping, paying.
A
66. Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates
a. documentation procedures are violated.
b. independent internal verification is violated.
c. segregation of duties is violated.
d. establishment of responsibility is violated.
C
67. Physical controls to safeguard assets do not include
a. cashier department supervisors.
b. vaults.
c. safety deposit boxes.
d. locked warehouses.
A
68. In large companies, the independent internal verification procedure is often assigned to
a. computer operators.
b. management.
c. internal auditors.
d. outside CPAs.
C
69. Maximum benefit from independent internal verification is obtained when
a. it is made on a pre-announced basis.
b. it is done by the employee possessing custody of the asset.
c. discrepancies are reported to management.
d. it is done at the time of the audit.
C
70. If employees are bonded
a. it means that they are not allowed to handle cash.
b. they have worked for the company for at least 10 years.
c. they have been insured against misappropriation of assets.
d. it is impossible for them to steal from the company.
C
71. In a small business, the lack of certain separations of duties can best be overcome by
a. bonding the employees.
b. getting the owner actively involved.
c. hiring only honest employees.
d. holding one person responsible for a given set of transactions.
B
72. Mrs. Smith has worked for Bosco Inc. for 20 years without taking a vacation. An internal control feature that would address this situation would be
a. human resource controls.
b. establishment of responsibility.
c. physical controls.
d. documentation procedures.
A
73. A system of internal control
a. is infallible.
b. can be rendered ineffective by employee collusion.
c. invariably will have costs exceeding benefits.
d. is premised on the concept of absolute assurance.
B
74. Which of the following statements is correct?
a. Due to its liquid nature, cash is the easiest asset to steal.
b. A good system of internal control will ensure that employees will not be able to steal cash.
c. It takes two or more employees working together to be able to steal cash.
d. All of these answer choices are correct.
A
75. Internal control measures
a. only apply to publicly traded companies.
b. are in place to safeguard assets.
c. can eliminate all irregularities in the accounting process.
d. All of these answer choices are correct.
B
76. Sam’s Grocery Store has the following policy. ‘Only one cashier can have access to a cash drawer.’ Which internal control principle supports this policy?
a. Documentation procedures.
b. Segregation of duties.
c. Physical controls.
d. Establishment of responsibilities.
D
77. Ron Jones has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated?
a. None, Ron has proven to be trustworthy and has enough experience to do a good job.
b. Documentation procedures.
c. Establishment of responsibilities.
d. Segregation of duties.
D
78. What is the rationale for the internal control principle, segregation of duties?
a. History has shown that employees are generally dishonest and thus cannot be entrusted with performing related duties.
b. The work of one employee should, without duplication of effort, provide a reliable basis for evaluating the work of another employee.
c. Control is most effective when only one person is responsible for a give task.
d. Segregation of duties causes companies to hire more employees and thus it supports the economy.
B
79. Bonding involves all of the following except
a. The company obtains insurance protection against misappropriation of assets by a dishonest employee.
b. The insurance company screens employees before they are added to the policy.
c. The company informs employees that the insurance company will vigorously prosecute all offenders.
d. Employees do not commit inappropriate acts because of the threat of prosecution and their loyalty to the employer.
D
80. Which of the following would not be included in the definition of cash?
a. Money on deposit in a bank.
b. Coins.
c. NSF checks.
d. Petty cash.
C
81. At Emerson Company, one bookkeeper prepares the cash deposits while the other bookkeeper enters the collections in the journal and ledger. Which of the following is the best explanation of this type of internal control principle over cash receipts?
a. Physical controls.
b. Documentation procedures.
c. Segregation of duties.
d. Mechanical controls.
C
82. Which one of the following items would not be considered cash?
a. Coins.
b. Money orders.
c. Currency.
d. Postdated checks.
D
83. The reconciliation of the cash register tape with the cash in the register is an example of
a. other controls.
b. independent internal verification.
c. establishment of responsibility.
d. segregation of duties.
B
84. Which of the following is not an internal control procedure for cash?
a. Payments should be made with cash.
b. There should be limited access to cash.
c. The amount of cash on hand should be kept to a minimum.
d. Cash should be deposited daily.
A
85. Which of the following is not an internal control activity for cash?
a. The number of persons who have access to cash should be limited.
b. The functions of record keeping and maintaining custody of cash should be combined.
c. Surprise audits of cash on hand should be made occasionally.
d. All cash receipts should be recorded promptly.
B
86. Supervisors counting cash receipts daily is an example of
a. human resource controls.
b. independent internal verification.
c. establishment of responsibility.
d. segregation of duties.
B
87. Which of the following is not an internal control procedure for cash?
a. Only designated personnel are authorized to handle cash.
b. The same individual receives the cash and pays the bills.
c. Surprise audits of cash on hand should be made occasionally.
d. Access to cash is limited.
B
88. Which of the following is not an internal control activity for cash?
a. All payments should be made with currency, not checks.
b. Banking facilities should be used as much as possible.
c. The amount of cash on hand should be kept to a minimum.
d. Employees who have access to cash should be bonded.
A
89. Control over cash disbursements is generally more effective when
a. all bills are paid in cash.
b. disbursements are made by the accounts payable subsidiary clerk.
c. payments are made by check.
d. all purchases are made on credit.
C
90. Which of the following is not a suggested procedure to establish internal control over cash disbursements?
a. Anyone can sign the checks.
b. Different individuals approve and make the payments.
c. Blank checks are stored with limited access.
d. The bank statement is reconciled monthly.
A
91. The use of prenumbered checks is an example of
a. documentation procedures.
b. independent internal verification.
c. establishment of responsibility.
d. segregation of duties.
A
92. Before a check authorization is issued, the following documents must be in agreement, except for the
a. invoice.
b. remittance advice.
c. receiving report.
d. purchase order.
B
93. Which of the following is an appropriate internal control activity for cash?
a. Record keeping and custodianship over cash should be performed by the same person.
b. Banking facilities should be used as little as possible.
c. All payments should be made with currency, not checks.
d. The amount of cash on hand should be kept to a minimum.
D
94. An exception to disbursements being made by check is acceptable when cash is paid
a. to an owner.
b. to employees as wages.
c. from petty cash.
d. to employees as loans.
C
95. Allowing only the treasurer to sign checks is an example of
a. documentation procedures.
b. separation of duties.
c. other controls.
d. establishment of responsibility.
D
96. Blank checks
a. should be safeguarded.
b. should be pre-signed.
c. do not need to be safeguarded since they must be signed to be valid.
d. should not be pre-numbered.
A
97. An employee authorized to sign checks should not record
a. owner cash contributions.
b. mail receipts.
c. cash disbursement transactions.
d. sales transactions.
C
98. Electronic funds transfer (EFT) is a disbursement system that transfers cash from one location to another using
a. a telephone.
b. a telegraph.
c. a computer.
d. a telephone, telegraph, or computer.
D
99. A bank statement
a. lets a depositor know the financial position of the bank as of a certain date.
b. is a credit reference letter written by the depositor’s bank.
c. is a bill from the bank for services rendered.
d. shows the activities that increased or decreased the depositor’s account balance.
D
100. Which one of the following would not cause a bank to debit a depositor’s account?
a. Bank service charge.
b. Collection of a note receivable.
c. Wiring of funds to other locations.
d. Checks marked NSF.
B
101. A company maintains the asset account, Cash in Bank, on its books, while the bank maintains a reciprocal account that is
a. a contra asset account.
b. a liability account.
c. also an asset account.
d. a stockholders’ equity account.
B
102. A deposit made by a company will appear on the bank statement as a
a. debit.
b. credit.
c. debit memorandum.
d. credit memorandum.
B
103. All of the following are items that would most likely be paid from a petty cash fund except
a. postage due.
b. taxi fares.
c. administrative wages.
d. freight-out.
C
104. All of the following are true regarding bank statements except
a. the bank statement will show a credit for deposits received from a company.
b. the bank statement balance will always agree with the company recorded balance.
c. the bank statement is a copy of the bank’s records sent to the customer for periodic review.
d. the bank statement will show a debit if a check is paid for a company issuing the check.
B
105. Which of the following controls would best help detect the removal of a blank check by an employee from the back of a company’s checkbook for subsequent misappropriation of funds?
a. An accounting policies manual.
b. Tracing any debit memorandums from the bank to the company’s records.
c. The use of prenumbered checks.
d. A review of the cash budget.
C
106. On a bank statement, paid checks are shown as
a. credits.
b. debits
c. assets.
d. liabilities.
B
107. A NSF check should appear in which section of the bank reconciliation?
a. Addition to the balance per books.
b. Deduction from the balance per bank.
c. Addition to the balance per bank.
d. Deduction from the balance per books.
D
108. Which of the following would be deducted from the balance per books on a bank reconciliation?
a. Outstanding checks.
b. Deposits in transit.
c. Notes collected by the bank.
d. Service charges.
D
109. Which of the following would be added to the balance per books on a bank reconciliation?
a. Outstanding checks.
b. Deposits in transit.
c. Notes collected by the bank.
d. NSF check.
C
110. Which of the following would not be subtracted from the balance per books on a bank reconciliation?
a. Outstanding checks.
b. NSF checks.
c. Check printing charge.
d. Service charges.
A
111. Which of the following would be deducted from the balance per bank on a bank reconciliation?
a. Outstanding checks.
b. Deposits in transit.
c. Notes collected by the bank.
d. Service charges.
A
112. Which of the following would be added to the balance per bank on a bank reconciliation?
a. Outstanding checks.
b. Deposits in transit.
c. Notes collected by the bank.
d. Service charges.
B
113. A check returned by the bank marked “NSF” means
a. no service fee.
b. no signature found.
c. not satisfactorily filled out.
d. not sufficient funds.
D
114. A debit memorandum would not be issued by the bank for
a. a bank service charge.
b. the issuance of traveler’s checks.
c. the wiring of funds.
d. the collection of a notes receivable.
D
115. A bank reconciliation should be prepared
a. whenever the bank refuses to lend the company money.
b. when an employee is suspected of fraud.
c. to explain any difference between the depositor’s balance per books with the balance per bank.
d. by the person who is authorized to sign checks.
C
116. Deposits in transit
a. have been recorded on the company’s books but not yet by the bank.
b. have been recorded by the bank but not yet by the company.
c. have not been recorded by the bank or the company.
d. are customers’ checks that have not yet been received by the company.
A
117. In preparing a bank reconciliation, outstanding checks are
a. added to the balance per bank.
b. deducted from the balance per books.
c. added to the balance per books.
d. deducted from the balance per bank.
D
118. If a check correctly written and paid by the bank for $628 is incorrectly recorded on the company’s books for $682, the appropriate treatment on the bank reconciliation would be to
a. add $54 to the book’s balance.
b. subtract $54 from the book’s balance.
c. deduct $54 from the bank’s balance.
d. deduct $628 from the book’s balance.
A
119. A check written by the company for $167 is incorrectly recorded by a company as $176. On the bank reconciliation, the $9 error should be
a. added to the balance per books.
b. deducted from the balance per books.
c. added to the balance per bank.
d. deducted from the balance per bank.
A
120. For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?
a. Check for $63 recorded as $36.
b. Deposit of $600 recorded by bank as $60.
c. A returned $300 check recorded by bank as $30.
d. Check for $75 recorded as $57.
B
121. For which of the following errors should the appropriate amount be subtracted from the balance per bank on a bank reconciliation?
a. Check for $63 recorded as $36.
b. Deposit of $600 recorded by bank as $60.
c. A returned $300 check recorded by bank as $30.
d. Check for $75 recorded as $57.
C
122. For which of the following errors should the appropriate amount be added to the balance per books on a bank reconciliation?
a. Check written for $63, but recorded as $36.
b. Deposit of $600 recorded by bank as $60.
c. A returned $300 check recorded by bank as $30.
d. Check written for $57, but recorded as $75.
D
123. For which of the following errors should the appropriate amount be subtracted from the balance per books on a bank reconciliation?
a. Check written for $63, but recorded as $36.
b. Deposit of $600 recorded by bank as $60.
c. A returned $300 check recorded by bank as $30.
d. Check written for $57, but recorded as $75.
A
124. Which of the following bank reconciliation items would not result in an adjusting entry?
a. Service charge.
b. Deposits in transit.
c. NSF check of customer.
d. Collection of a note by the bank.
B
125. Which of the following items on a bank reconciliation would require an adjusting entry on the company’s books?
a. An error by the bank.
b. Outstanding checks.
c. A bank service charge.
d. A deposit in transit.
C
126. All of the following bank reconciliation items would result in an adjusting entry on the company’s books except
a. interest earned.
b. deposits in transit.
c. fee for collection of note by bank.
d. NSF check of customer.
B
127. Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry:
a. Accounts Receivable
Cash
b. Cash
Accounts Receivable
c. Miscellaneous Expense
Accounts Receivable
d. No adjusting entry is necessary.
A
128. James Company had checks outstanding totaling $21,600 on its June bank reconciliation. In July, James Company issued checks totaling $155,600. The July bank statement shows that $105,200 in checks cleared the bank in July. A check from one of James Company’s customers in the amount of $1,200 was also returned marked “NSF.” The amount of outstanding checks on James Company’s July bank reconciliation should be
a. $50,400.
b. $72,000.
c. $70,800.
d. $28,800.
B

Solution: $21,600 + $155,600 ? $105,200 = $72,000

129. Dekin Company had checks outstanding totaling $17,000 on its May bank reconciliation. In June, Dekin Company issued checks totaling $106,400. The July bank statement shows that $79,200 in checks cleared the bank in July. A check from one of Dekin Company’s customers in the amount of $800 was also returned marked “NSF.” The amount of outstanding checks on Dekin Company’s July bank reconciliation should be
a. $43,400.
b. $27,200.
c. $44,200.
d. $10,200.
C

Solution: $17,000 + $106,400 ? $79,200 = $44,200

130. Nilson Company gathered the following reconciling information in preparing its August bank reconciliation:
Cash balance per books, 8/31 $21,000
Deposits in transit 900
Notes receivable and interest collected by bank 5,100
Bank charge for check printing 120
Outstanding checks 12,000
NSF check 1,020
The adjusted cash balance per books on August 31 is
a. $24,960.
b. $24,060.
c. $13,800.
d. $14,760.
A

Solution: $21,000 + $5,100 ? $120 ? $1,020 = $24,960

131. Karlin Company gathered the following reconciling information in preparing its April bank reconciliation:
Cash balance per books, 4/30 $13,200
Deposits in transit 1,800
Notes receivable and interest collected by bank 4,440
Bank charge for check printing 150
Outstanding checks 9,000
NSF check 840
The adjusted cash balance per books on April 30 is
a. $18,450.
b. $17,640.
c. $16,650.
d. $18,330.
C

Solution: $13,200 + $4,440 ? $150 ? $840 = $16,650

132. Clark Company developed the following reconciling information in preparing its September bank reconciliation:
Cash balance per bank, 9/30 $30,800
Note receivable collected by bank 16,800
Outstanding checks 25,200
Deposits in transit 12,600
Bank service charge 210
NSF check 3,360
Using the above information, determine the cash balance per books (before adjustments) for the Clark Company.
a. $27,370.
b. $43,400.
c. $4,970.
d. $42,000.
C

Solution: ($30,800 ? $25,200 + $12,600) ? $16,800 + $210 + $3,360 = $4,970

133. Bank errors
a. occur because of time lags.
b. must be corrected by debits.
c. are infrequent in occurrence.
d. are corrected by making an adjusting entry on the depositor’s books.
C
134. Higgins Company gathered the following reconciling information in preparing its October bank reconciliation:
Cash balance per books, 10/31 $12,600
Deposits in transit 450
Notes receivable and interest collected by bank 2,550
Bank charge for check printing 60
Outstanding checks 6,000
NSF check 510
The adjusted cash balance per books on October 31 is
a. $14,130.
b. $12,030.
c. $8,580.
d. $14,580.
D

Solution: $12,600 + $2,550 ? $60 ? $510 = $14,580

135. Dobler Company gathered the following reconciling information in preparing its June bank reconciliation:
Cash balance per books, 6/30 $8,400
Deposits in transit 600
Notes receivable and interest collected by bank 1,480
Bank charge for check printing 50
Outstanding checks 3,000
NSF check 280
The adjusted cash balance per books on June 30 is
a. $10,150.
b. $9,880.
c. $9,550.
d. $10,110.
C

Solution: $8,400 + $1,480 ? $50 ? $280 = $9,550

136. Adler Company developed the following reconciling information in preparing its December bank reconciliation:
Cash balance per bank, 12/31 $20,000
Note receivable collected by bank 10,000
Outstanding checks 15,000
Deposits in transit 7,500
Bank service charge 125
NSF check 2,000
Using the above information, determine the cash balance per books (before adjustments) for the Adler Company.
a. $4,625.
b. $27,500.
c. $14,625.
d. $20,000.
A

Solution: ($20,000 ? $15,000 + $7,500) ? $10,000 + $125 + 2,000 = $4,625

137. An adjusting entry is not required for
a. outstanding checks.
b. collection of a note by the bank.
c. NSF checks.
d. bank service charges.
A
138. In the month of November Gavin Company Inc. wrote checks in the amount of $37,000. In December, checks in the amount of $50,632 were written. In November, $33,872 of these checks were presented to the bank for payment, and $43,532 in December. What is the amount of outstanding checks at the end of December?
a. $7,100.
b. $10,228.
c. $3,128.
d. $14,200.
B

Solution: ($37,000 + $50,632) ? ($33,872 + $43,532) = $10,228

139. In the month of November Gavin Company Inc. wrote checks in the amount of $27,750. In December, checks in the amount of $37,974 were written. In November, $25,404 of these checks were presented to the bank for payment, and $32,649 in December. What is the amount of outstanding checks at the end of December?
a. $5,325.
b. $2,346.
c. $7,671.
d. $10,650.
C

Solution: ($27,750 + $37,974) ? ($25,404 + $32,649) = $7,671

140. What causes the balance on the bank statement to differ from the cash balance in the general ledger?
a. Time lags.
b. Errors by the bank.
c. Errors by the company.
d. All of these answer choices are correct.
D
141. Of the following employees, who should prepare the bank reconciliation?
a. Anne, the bookkeeper, because she is aware of all transactions that affected cash.
b. Michael, the treasurer, because he has control of the checkbook and has taken more accounting courses than any other employee.
c. Mary, the cashier, because she does not pay bills.
d. Frank, the purchasing agent, because he does not work in the accounting department.
D
142. While preparing the bank reconciliation, you notice that a check, written by the company for $750, has been outstanding for 5 months. What is the best action for you to take?
a. Void the check. If it has not been cashed in 5 months, it will never be cashed.
b. Issue a replacement check because you assume the original check has been lost.
c. Wait 3 more months to give the bank more time to clear the check.
d. Investigate to determine why the check has not cleared.
D
143. Which of the following is an example of a bank reconciliation item that requires an adjusting entry?
a. NSF check.
b. Deposit in transit.
c. Bank error.
d. None of these items requires an adjusting entry.
A
144. At April 30, Kessler Company has the following bank information:
Cash balance per bank $11,500
Outstanding checks $700
Deposits in transit $1,375
Credit memo for interest $25
Bank service charge $50
What is Kessler’s adjusted cash balance on April 30?
a. $12,150.
b. $12,200.
c. $10,825.
d. $12,175.
D

Solution: $11,500 ? $700 + $1,375 = $12,175

145. At April 30, Mendoza Company has the following bank information:
Cash balance per bank $7,200
Outstanding checks $560
Deposits in transit $1,100
Credit memo for interest $20
Bank service charge $40
What is Mendoza’s adjusted cash balance on April 30?
a. $7,720.
b. $7,760.
c. $6,660.
d. $7,740.
D

Solution: $7,200 ? $560 + $1,100 = $7,740

146. Lackey Company wrote checks totaling $25,620 during October and $27,976 during November. $24,360 of these checks cleared the bank in October, and $27,330 cleared the bank in November. What was the amount of outstanding checks on November 30?
a. $1,906.
b. $346.
c. $916.
d. $2,970.
A

Solution: ($25,620 + $27,976) ? ($24,360 + $27,330) = $1,906

147. Bishop Company wrote checks totaling $34,160 during October and $37,300 during November. $32,480 of these checks cleared the bank in October, and $36,440 cleared the bank in November. What was the amount of outstanding checks on November 30?
a. $2,540.
b. $460.
c. $1,220.
d. $3,960.
A

Solution: ($34,160 + $37,300) ? ($32,480 + $36,440) = $2,540

148. Russel Company assembled the following information in completing its March bank reconciliation:
Balance per bank $11,460
Outstanding checks $2,325
Deposits in transit $3,750
NSF check $240
Bank service charge $75
Cash balance per books $13,200
As a result of this reconciliation, Russel will
a. reduce its cash account by $1,425.
b. reduce its cash account by $75.
c. increase its cash account by $165.
d. reduce its cash account by $315.
D

Solution: $240 + $75 = $315

149. Schwinn Company assembled the following information in completing its March bank reconciliation:
Balance per bank $15,280
Outstanding checks $3,100
Deposits in transit $5,000
NSF check $320
Bank service charge $100
Cash balance per books $17,600
As a result of this reconciliation, Schwinn will
a. reduce its cash account by $1,900.
b. reduce its cash account by $100.
c. increase its cash account by $220.
d. reduce its cash account by $420.
D

Solution: $320 + $100 = $420

150. If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company’s books for $419, the appropriate treatment on the bank reconciliation would be to
a. add $72 to the book’s balance.
b. subtract $72 from the book’s balance.
c. deduct $72 from the bank’s balance.
d. deduct $491 from the book’s balance.
B
151. A check written by the company for $275 is incorrectly recorded by a company as $257. On the bank reconciliation, the $18 error should be
a. added to the balance per books.
b. deducted from the balance per books.
c. added to the balance per bank.
d. deducted from the balance per bank.
B
152. In the month of May, Lopat Company Inc. wrote checks in the amount of $55,500. In June, checks in the amount of $75,948 were written. In May, $50,808 of these checks were presented to the bank for payment, and $65,298 in June. What is the amount of outstanding checks at the end of May?
a. $10,650.
b. $4,692.
c. $15,342.
d. $21,300.
B

Solution: $55,500 ? $50,808 = $4,692

153. In the month of May, Lopat Company Inc. wrote checks in the amount of $46,250. In June, checks in the amount of $63,290 were written. In May, $42,340 of these checks were presented to the bank for payment, and $54,415 in June. What is the amount of outstanding checks at the end of June?
a. $8,875.
b. $3,910.
c. $12,785.
d. $17,750.
C

Solution: ($46,250 + $63,290) ? ($42,340 + $54,415) = $12,785

154. Which statement regarding negative cash balances is true?
a. The amount is offset against other current assets because users need to know net current assets.
b. The amount is shown as a current liability because a company cannot have a cash balance below zero.
c. The company must obtain a loan to bring the cash balance to zero before financial statements are prepared.
d. The negative cash balance is included as a current asset and discussed in a footnote to the financial statements.
B
155. Which item is a current asset?
a. Cash – regardless of whether it has a positive or negative balance.
b. Cash equivalents.
c. Cash that will be used to close a plant in eighteen months.
d. Restricted cash that will not be used within the upcoming year.
B
156. Which of the following would not be reported on the balance sheet as a cash equivalent?
a. Money market fund.
b. Commercial paper.
c. Treasury bill.
d. Restricted cash.
D
157. Cash equivalents do not include
a. money market accounts.
b. commercial paper.
c. U.S. Treasury bills.
d. long-term investment.
D
158. Restricted cash should be reported
a. always as a noncurrent asset.
b. separately on the income statement.
c. separately on the balance sheet.
d. always as a current asset.
C
159. All of the following are true regarding the management and monitoring of cash except
a. companies may have plenty of sales, but insufficient cash to support operations.
b. the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company.
c. manufacturers may experience a significant lag between the purchase of raw materials and the receipt of cash from customers.
d. companies should have sufficient cash to meet payments but minimize the amount of non-revenue-generating cash on hand.
B
160. Collier Company has implemented a just-in-time system, which relies on suppliers to deliver goods for resale as needed. This implementation is most consistent with which of the following basic principles of cash management?
a. Increasing the speed of receivables collection.
b. Planning the timing of major expenditures.
c. Keeping inventory levels low.
d. Delaying the payment of liabilities.
C
161. Management of cash is the responsibility of the company
a. accountant.
b. president.
c. treasurer.
d. vice-president.
C
162. Which of the following is not a basic principle of cash management?
a. Increase the speed of collection on receivables.
b. Maintain idle cash.
c. Keep inventory levels low.
d. Delay payment of liabilities.
B
163. Which of the following is not a basic principle of cash management?
a. Increase collection of receivables.
b. Keep inventory levels high.
c. Delay payment of liabilities.
d. Invest idle cash.
B
164. Which of the following is not a basic principle of cash management?
a. Increase collection of receivables.
b. Keep inventory levels low.
c. Pay all liabilities early.
d. Invest idle cash.
C
165. Which of the following does not appear as a separate section on the cash budget?
a. Cash receipts.
b. Cash disbursements.
c. Cash sales.
d. Financing.
C
166. The following information was taken from Mitchell Company cash budget for the month of July:
Beginning cash balance $100,000
Cash receipts 96,000
Cash disbursements 136,000
If the company has a policy of maintaining end of the month cash balance of $100,000, the amount the company would have to borrow is
a. $40,000.
b. $20,000.
c. $60,000.
d. $24,000.
A

Solution: $100,000 ? ($100,000 + $96,000 ? $136,000) = $40,000

167. The following information was taken from Hurlbert Company cash budget for the month June
Beginning cash balance $46,000
Cash receipts 62,000
Cash disbursements 78,000
If the company has a policy of maintaining end of the month cash balance of $40,000, the amount the company would have to borrow is
a. $24,000.
b. $10,000.
c. $16,000.
d. $0.
B

Solution: $40,000 ? ($46,000 + $62,000 ? $78,000) = $10,000

168. The following information was taken from Niland Company cash budget for the month of April
Beginning cash balance $90,000
Cash receipts 81,000
Cash disbursements 102,000
If the company has a policy of maintaining end of the month cash balance of $75,000, the amount the company would have to borrow is
a. $87,000.
b. $21,000.
c. $6,000.
d. $0.
C

Solution: $75,000 ? ($90,000 + $81,000 ? $102,000) = $6,000

169. Which one of the following sections would not appear on a cash budget?
a. Cash receipts.
b. Financing needed.
c. Investing.
d. Cash disbursements.
C
170. The following information was taken from Hobson Company cash budget for the month of June
Beginning cash balance $150,000
Cash receipts 145,000
Cash disbursements 170,000
If the company has a policy of maintaining end-of-the-month cash balance of $125,000, the amount the company would have to borrow is
a. $50,000.
b. $25,000.
c. $0
d. $75,000.
C
171. The following information was taken from Molina Company cash budget for the month of November:
Beginning cash balance $96,000
Cash receipts 116,000
Cash disbursements 160,000
If the company has a policy of maintaining an end-of-the-month cash balance of $80,000, the amount the company would have to borrow is
a. $44,000.
b. $0.
c. $28,000.
d. $80,000.
C

Solution: $80,000 ? ($96,000 + $116,000 ? $160,000) = $28,000

172. The following credit sales are budgeted by Garcia Company:
January $255,000
February 375,000
March 525,000
April 450,000
The company’s past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of March is
a. $462,900.
b. $420,000.
c. $450,000.
d. $441,000.
A

Solution: ($255,000 ? .08) + ($375,000 ? .20) + ($525,000 ? .70) = $462,900

173. The cash receipts section of a cash budget includes all of the following except
a. cash sales.
b. collections from customers.
c. receipts of interest and dividends.
d. expected borrowings.
D
174. Which of the following is not included in the cash disbursements section of a cash budget?
a. Payments for materials.
b. Payments for income taxes.
c. Repayments of borrowed funds.
d. All of these answer choices are included.
C
175. The following credit sales are budgeted by Gonzalez Company:
February 150,000
March 210,000
April 180,000
The company’s past experience indicates that 80% of the accounts receivable are collected in the month of sale, 20% in the month following the sale. The anticipated cash inflow for the month of April is
a. $144,000.
b. $168,000.
c. $180,000.
d. $186,000.
D

Solution: ($210,000 ? .20) + ($180,000 ? .80) = $186,000

176. The following credit sales are budgeted by Gonzalez Company:
January $102,000
February 150,000
March 210,000
The company’s past experience indicates that 80% of the accounts receivable are collected in the month of sale, 20% in the month following the sale. The anticipated cash inflow for the month of March is
a. $198,000.
b. $168,000.
c. $210,000.
d. $204,000.
A

Solution: ($150,000 ? .20) + ($210,000 ? .80) = $198,000

177. If the cash budget showed a projected cash shortage, the company would most likely
a. make fewer purchases of inventory so they could control costs.
b. lay off workers for that period.
c. arrange to borrow the necessary cash for that period.
d. cut salaries for that period.
C
178. Ferguson Company is preparing a cash budget for September. The company’s cash balance on September 1 is $23,200. The company anticipates cash receipts of $111,800 and cash disbursements of $117,320. If Ferguson desires a cash balance of $24,000, it must
a. acquire financing of $800.
b. acquire financing of $6,320.
c. acquire financing of $4,720.
d. acquire financing of $18,480.
B

Solution: $24,000 ? ($23,200 + $111,800 ? $117,000) = $6,320

179. Petersen Company is preparing a cash budget for September. The company’s cash balance on September 1 is $17,400. The company anticipates cash receipts of $83,850 and cash disbursements of $87,990. If Petersen desires a cash balance of $18,000, it must
a. acquire financing of $600.
b. acquire financing of $4,740.
c. acquire financing of $3,540.
d. acquire financing of $13,860.
B

Solution: $18,000 ? ($17,400 + $83,850 ? $87,990) = $4,740

180. The following credit sales are budgeted by Milford Company:
May $357,000
June 525,000
July 735,000
August 630,000
The company’s past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of August is
a. $648,060.
b. $588,000.
c. $630,000.
d. $617,400.
C

Solution: ($525,000 ? .08) + ($735,000 ? .20) + ($630,000 ? .70) = $630,000

181. A company’s past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were:
April $ 200,000
May 120,000
June 300,000
The cash inflow in the month of June is expected to be
a. $226,000.
b. $171,000.
c. $180,000.
d. $216,000.
A

Solution: ($200,000 ? .05) + ($120,000 ? .30) + ($300,000 ? .60) = $226,000

182. A company’s past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were:
July $240,000
August 144,000
September 360,000
The cash inflow in the month of September is expected to be
a. $271,200.
b. $205,200.
c. $216,000.
d. $259,200.
A

Solution: ($240,000 ? .05) + ($144,000 ? .30) + ($360,000 ? .60) = $271,200

183. Which one of the following items would never appear on a cash budget?
a. Office salaries expense.
b. Interest expense.
c. Depreciation expense.
d. Travel expense.
C
184. Expected direct materials purchases in Rees Company are $140,000 in the first quarter and $180,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are:
a. $192,000.
b. $180,000.
c. $156,000.
d. $144,000.
C

Solution: ($140,000 ? .60) + ($180,000 ? .40) = $156,000

185. Expected direct materials purchases in Wade Company are $525,000 in the first quarter and $675,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are:
a. $720,000.
b. $675,000.
c. $585,000.
d. $540,000.
C

Solution: ($525,000 ? .60) + ($675,000 ? .40) = $585,000

*186. A credit balance in Cash Over and Short account is shown as
a. an asset.
b. a liability.
c. a revenue.
d. an expense.
C
*187. All of the following activities occur at the time of a cash disbursement from petty cash except
a. the petty cash custodian signs the voucher.
b. available supporting documents are attached to the voucher.
c. a journal entry is made for each cash distribution.
d. the individual receiving payment signs the voucher.
C
*188. All of the following actions would strengthen internal control over a petty cash fund except
a. surprise counts by a supervisor.
b. cancellation of paid vouchers.
c. submission of supporting documents.
d. multiple petty cash custodians.
D
*189. Which of the following is not a necessary internal control procedure for the replenishment of the petty cash fund?
a. Segregation of duties.
b. Documentation procedures.
c. Independent internal verification.
d. Employee background check.
D
*190. The entry to replenish a petty cash fund includes a credit to
a. Petty Cash.
b. Cash.
c. Freight-In.
d. Postage Expense.
B
*191. A debit balance in Cash Over and Short is reported as a
a. contra asset.
b. miscellaneous asset.
c. miscellaneous expense.
d. miscellaneous revenue.
C
*192. A $100 petty cash fund has cash of $10 and receipts of $80. The journal entry to replenish the account would include a credit to
a. Cash for $90.
b. Petty Cash for $90.
c. Cash Over and Short for $10.
d. Cash for $80.
A

Solution: $100 ? $10 = $90

*193. A $200 petty cash fund has cash of $37 and receipts of $160. The journal entry to replenish the account would include a
a. debit to Cash for $160.
b. credit to Petty Cash for $163.
c. debit to Cash Over and Short for $3.
d. credit to Cash for $160.
C

Solution: $200 ? $37 ? $160 = $3

*194. A $100 petty cash fund has cash of $16 and receipts of $86. The journal entry to replenish the account would include a
a. debit to Cash for $84.
b. credit to Petty Cash for $84.
c. credit to Cash Over and Short for $2.
d. credit to Cash for $86.
C

Solution: $86 ? ($100 ? $16) = $2

*195. A $200 petty cash fund has cash of $26 and receipts of $170. The journal entry to replenish the account would include
a. debit to Cash for $170.
b. credit to Petty Cash for $170.
c. debit to Petty Cash for $174.
d. credit to Cash for $174.
D

Solution: $200 ? $26 = $174

*196. A $100 petty cash fund has cash of $14 and receipts of $84. The journal entry to replenish the account would include a
a. debit to Cash for $84.
b. credit to Petty Cash for $84.
c. credit to Cash Over and Short for $2.
d. credit to Cash for $86.
D

Solution: $100 ? $14 = $86

*197. A $200 petty cash fund has cash of $32 and receipts of $171. The journal entry to replenish the account would include
a. debit to Cash for $171.
b. credit to Petty Cash for $171.
c. credit to Cash over and Short for $3.
d. credit to Cash for $171.
C

Solution: $171 ? ($200 ? $32

*198. A petty cash fund of $200 is replenished when the fund contains $12 in cash and receipts for $184. The entry to replenish the fund would
a. credit Cash Over and Short for $4.
b. credit Miscellaneous Revenue for $4.
c. debit Cash Over and Short for $4.
d. debit Miscellaneous Expense for $4.
C
*199. A petty cash fund should be replenished
a. every day.
b. at the end of every accounting period.
c. once a year.
d. as soon as an expense is paid from the fund.
B
*200. Entries are made to the Petty Cash account when
a. establishing the fund.
b. making payments out of the fund.
c. recording shortages in the fund.
d. replenishing the fund.
A
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