1. (LO 1) Which of the following is not an element of the fraud triangle?
a. Rationalization.
b. Financial pressure.
c. Segregation of duties.
d. Opportunity.
answer
1. c. Segregation of duties is not an element of the fraud triangle. The other choices are fraud triangle elements.
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2. (LO 1) Internal control is used in a business to:
a. safeguard its assets.
b. enhance the accuracy and reliability of its accounting records.
c. ensure compliance with laws and regulations.
d. All of these answer choices are correct.
answer
2. d. Safeguarding a company's assets, enhancing the accuracy and reliability of its accounting records, and ensuring compliance with laws and regulations are all aspects of internal control.
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3. (LO 1) The principles of internal control do not include:
a. establishment of responsibility.
b. documentation procedures.
c. management responsibility.
d. independent internal verification.
answer
3. c. Management responsibility is not one of the principles of internal control. The other choices are true statements.
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4. (LO 1) Physical controls do not include:
a. safes and vaults to store cash.
b. independent bank reconciliations.
c. locked warehouses for inventories.
d. bank safety deposit boxes for important papers.
answer
4. b. Independent bank reconciliations are not a physical control. The other choices are true statements.
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5. (LO 1) Which of the following was not a result of the Sarbanes-Oxley Act?
a. Companies must file financial statements with the Internal Revenue Service.
b. All publicly traded companies must maintain adequate internal controls.
c. The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity.
d. Corporate executives and boards of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.
answer
5. a. Filing financial statements with the IRS is not a result of the Sarbanes-Oxley Act (SOX); SOX focuses on the prevention or detection of fraud. The other choices are results of SOX.
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6. (LO 1) Which of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system?
a. Establishment of responsibility.
b. Segregation of duties.
c. Independent internal verification.
d. All of these control activities are relevant to a computerized system.
answer
6. d. Establishment of responsibility, segregation of duties, and independent internal verification are all relevant to a computerized system. Although choices (a), (b), and (c) are correct, choice (d) is the better answer.
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7. (LO 2) Permitting only designated personnel such as cashiers to handle cash receipts is an application of the principle of:
a. segregation of duties.
b. establishment of responsibility.
c. independent internal verification.
d. human resource controls.
answer
7. b. Permitting only designated personnel to handle cash receipts is an application of the principle of establishment of responsibility, not (a) segregation of duties, (c) independent internal verification, or (d) human resource controls.
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8. (LO 2) The use of prenumbered checks in disbursing cash is an application of the principle of:
a. establishment of responsibility.
b. segregation of duties.
c. physical controls.
d. documentation procedures
answer
8. d. The use of prenumbered checks in disbursing cash is an application of the principle of documentation procedures, not (a) establishment of responsibility, (b) segregation of duties, or (c) physical controls.
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9. (LO 3) The control features of a bank account do not include:
a. having bank auditors verify the correctness of the bank balance per books.
b. minimizing the amount of cash that must be kept on hand.
c. providing a double record of all bank transactions.
d. safeguarding cash by using a bank as a depository.
answer
9. a. Having bank auditors verify the correctness of the bank balance per books is not one of the control features of a bank account. The other choices are true statements.
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10. (LO 3) In a bank reconciliation, deposits in transit are:
a. deducted from the book balance.
b. added to the book balance.
c. added to the bank balance.
d. deducted from the bank balance.
answer
10. c. Deposits in transit are added to the bank balance on a bank reconciliation, not (a) deducted from the book balance, (b) added to the book balance, or (d) deducted from the bank balance.
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11. (LO 3) The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:
a. outstanding checks.
b. deposit in transit.
c. a bank error.
d. bank service charges.
answer
11. d. Because the depositor does not know the amount of the bank service charges until the bank statement is received, an adjusting entry must be made when the statement is received. The other choices are incorrect because (a) outstanding checks do not require an adjusting entry by the depositor because the checks have already been recorded in the depositor's books, (b) deposits in transit do not require an adjusting entry by the depositor because the deposits have already been recorded in the depositor's books, and (c) bank errors do not require an adjusting entry by the depositor, but the depositor does need to inform the bank of the error so it can be corrected.
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12. (LO 4) Which of the following items in a cash drawer at November 30 is not cash?
a. Money orders.
b. Coins and currency.
c. An NSF check.
d. A customer check dated November 28.
answer
12. c. An NSF check should not be considered cash. The other choices are true statements.
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13. (LO 4) Which statement correctly describes the reporting of cash?
a. Cash cannot be combined with cash equivalents.
b. Restricted cash funds may be combined with cash.
c. Cash is listed first in the current assets section.
d. Restricted cash funds cannot be reported as a current asset.
answer
13. c. Cash is listed first in the current assets section. The other choices are incorrect because (a) cash and cash equivalents can be appropriately combined when reporting cash on the balance sheet, (b) restricted cash is not to be combined with cash when reporting cash on the balance sheet, and (d) restricted funds can be reported as current assets if they will be used within one year.
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14. (LO 4) Which of the following would not be an example of good cash management?
b. a. Provide discounts to customers to encourage early payment.
c. Invest temporary excess cash in stock of a small company.
d. Carefully monitor payments so that payments are not made early.
Employ just-in-time inventory methods to keep inventory low.
answer
14. b. Investing excess cash to purchase stock in a small company is inappropriate because the stock of small companies is often not easily converted to cash. Choices (a) providing discounts to customers to encourage early payment, (c) carefully monitoring payments so that cash is held until just before the payment date of liabilities, and (d) keeping inventory levels low are all good cash management practices.
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15. (LO 4) Which of the following is not one of the sections of a cash budget?
a. Cash receipts section.
b. Cash disbursements section.
c. Financing section.
d. Cash from operations section.
answer
15. d. Cash from operations is not a section of a cash budget. Choices (a) cash receipts section, (b) cash disbursements section, and (c) financing section are all elements of a cash budget.
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*16. (LO 5) A check is written to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash. In recording the check:
a. debit Cash Over and Short for $2.
b. debit Petty Cash for $94.
c. credit Cash for $94.
d. credit Petty Cash for $2.
answer
*16. a. When this check is recorded, the company should debit Cash Over and Short for the shortage of $2 (total of the receipts plus cash in the drawer ($98) versus $100), not (b) debit Petty Cash for $94, (c) credit Cash for $94, or (d) credit Petty Cash for $2.
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