Question: All of the following are objectives of internal control EXCEPT
Answer Options:
a. eliminating errors.
b. ensuring the accuracy of business information.
c. safeguarding assets and ensuring their use for business purposes.
d. ensuring compliance with laws and regulations by employees and managers.
Answer: A. eliminating errors
Question: Which of the following statements concerning the Internal Control—Integrated Framework is NOT true?
Answer Options:
a. The framework is the widely accepted standard by which companies design internal controls.
b. The framework is the widely accepted standard by which companies analyze and evaluate internal controls.
c. The framework was issued by the FASB.
d. The framework is often the basis of a discussion of internal controls.
Answer: C. The framework was issued by the FASB
Question: If the adjusted balances in the bank and company sections of the bank reconciliation are not equal, this means
Answer Options:
a. an item has been overlooked and must be found.
b. a fraud has been committed.
c. the bank has made an error.
d. the differing amounts will be reconciled in the next period.
Answer: A. an item has been overlooked and must be found
Question: Which cost flow assumption assumes that the last units purchased are the first units sold?
Answer Options:
LIFO
FIFO
Specific identification
Weighted average cost
Answer: A. LIFO
Question: The debit balance in Cash Short and Over at the end of an accounting period is reported as
Answer Options:
a. income on the income statement.
b. an asset on the balance sheet.
c. an expense on the income statement.
d. a liability on the balance sheet.
Answer: C. an expense on the income statement
Question: Sometimes startup companies
Answer Options:
a. report negative net cash flows from operations.
b. use the ratio of cash to monthly cash expenses.
c. report losses.
d. All of these choices are correct.
Answer: D. All of these choices are correct
Question: Cash equivalents include
Answer Options:
a. stocks and short-term bonds b. checks c. coins and currency d. money market accounts and commercial paper
Answer: d. money market accounts and commercial paper
Question: A bank statement
Answer Options:
a. lets a depositor know the financial position of the bank as of a certain date.
b. is a bill from the bank for services rendered.
c. is a credit reference letter written by the depositor’s bank.
d. provides a summary of all checking account transactions recorded by the bank.
Answer: D. provides a summary of all checking account transactions recorded by the bank
Question: The ratio of cash to monthly cash expenses is computed as
Answer Options:
a. Monthly Cash Expenses ÷ 12.
b. Cash as of Year-End ÷ Monthly Cash Expenses.
c. Negative Cash Flow from Operations ÷ 12.
d. Cash as of Year-End ÷ Negative Cash Flow from Operations.
Answer: D. Cash as of Year-End ÷ Negative Cash Flow from Operations.
Question: Which cost flow assumption assumes that the first units purchased are the first units sold?
Answer Options:
LIFO
FIFO
Specific identification
Weighted average cost
Answer: B. FIFO
Question: Sarbanes-Oxley does NOT require
Answer Options:
a. all publicly held companies to comply with the act.
b. companies to file their internal control reports along with the 10-K report with the Securities and Exchange Commission.
c. companies and their independent accountants to report on the effectiveness of the companies’ internal controls.
d. companies to turn over responsibility for establishing and maintaining internal controls for financial reporting to auditors.
Answer: D. companies to turn over responsibility for establishing and maintaining internal controls for financial reporting to auditors
Question: Entries are made to the petty cash account when
Answer Options:
a. establishing the fund b. recording shortages in the fund c. replenishing the petty cash fund d. making payments out of the fund
Answer: a. establishing the fund
Question: The credit recorded in the journal to reimburse the petty cash fund is to
Answer Options:
a. Accounts Receivable.
b. Cash.
c. Petty Cash.
d. various accounts for which the petty cash was disbursed.
Answer: B. Cash
Question: The credit balance in Cash Short and Over at the end of an accounting period is reported as
Answer Options:
a. income on the income statement.
b. an asset on the balance sheet.
c. an expense on the income statement.
d. a liability on the balance sheet.
Answer: A. income on the income statement
Question: When the weighted average cost method is used in a perpetual inventory system, a weighted average unit cost for each item is computed _____.
Answer Options:
each time a sale is made.
at the end of the year.
at the beginning of each month.
each time a purchase is made.
Answer: D. each time a purchase is made.
Question: Journal entries affect the petty cash account when
Answer Options:
a. recording shortages in the fund.
b. decreasing the established amount of the fund.
c. making payments out of the fund.
d. replenishing the fund.
Answer: B. decreasing the established amount of the fund
Question: The bank section of the bank reconciliation
Answer Options:
a. begins with the cash balance according to the company records.
b. ends with the unadjusted bank balance.
c. ends with the adjusted balance.
d. None of these choices are correct.
Answer: C. ends with the adjusted balance
Question: The control environment is influenced by all of the following primary factors EXCEPT
Answer Options:
a. the company’s organizational structure.
b. the company’s personnel policies.
c. management’s philosophy and operating style.
d. changes in the personnel that make up the internal audit team.
Answer: D. changes in the personnel that make up the internal audit team
Question: A bank correction of an error from recording a $50 check paid as $500 appears on the bank statement as a __________ memorandum that __________ the account balance.
Answer Options:
a. credit; decreases
b. debit; increases
c. credit; increases
d. debit; decreases
Answer: C. credit; increases
Question: Cash equivalents include
Answer Options:
a. U.S. Treasury bills.
b. money market funds.
c. commercial paper.
d. All of these choices are correct.
Answer: D. All of these choices are correct
Question: Which of the following would be subtracted from the balance per company records on a bank reconciliation?
Answer Options:
a. notes collected by the bank b. deposits in transit c. outstanding checks d. error in recording a check issued for $732 as $723
Answer: d. error in recording a check issued for $732 as $723
Question: Which of these is a minimum cash account balance that is required by a bank?
Answer Options:
a. Compensating balance
b. Cash equivalent
c. Line of credit
d. Bank loan
Answer: A. Compensating balance
Question: The amount of the outstanding checks is included on the bank reconciliation as a(n)
Answer Options:
a. addition to the balance per bank statement b. deduction from the balance per company’s records c. deduction from the balance per bank statement d. addition to the balance per company’s records
Answer: c. deduction from the balance per bank statement