Académique Documents
Professionnel Documents
Culture Documents
Student: ___________________________________________________________________________
True False
2. Common types of financial statement fraud include creating fictitious revenues from a fake customer,
improperly valuing assets, and mismatching revenues and expenses.
True False
3. In response to corporate accounting scandals and to public outrage over seemingly widespread unethical
behavior of top executives, Congress passed the Sarbanes-Oxley Act.
True False
4. The Sarbanes-Oxley Act is also known as Generally Accepted Accounting Principles.
True False
5. The Public Company Accounting Oversight Board (PCAOB) has the authority to establish standards
dealing with auditing, quality control, ethics, independence, and other activities relating to the preparation
of audited financial reports.
True False
6. Auditors of public companies can perform the full range of audit and nonaudit consulting services for their
audit clients.
True False
7. Section 404 of the Sarbanes-Oxley Act requires that a company's management document and assess the
effectiveness of all internal control processes that could affect financial reporting.
True False
8. Internal control is a company's plan to (1) improve the accuracy and reliability of accounting information
and (2) safeguard the company's assets.
True False
9. One benefit of internal control is greater reliance by investors on reported financial statements.
True False
10. A framework for designing an internal control system is provided by the Financial Accounting Standards
Board (FASB).
True False
11. The control environment refers to the overall top-to-bottom attitude of the company with respect to internal
controls.
True False
12. Risk assessment procedures include periodic reviews of internal controls, assessing management's
oversight of the internal control, developing solutions to known cases of internal control failures, and
determining whether each division or operation within a company is meeting its objectives.
True False
13. Separation of duties refers to auditors not being allowed to perform both audit and nonaudit services for the
same client.
True False
14. An example of separation of duties would be not allowing an employee who receives cash to also be
responsible for depositing that cash in the bank account.
True False
15. The internal control component of information and communication relates to the effectiveness of accurately
measuring and communicating business transactions.
True False
16. Management needs to monitor the internal control system, just like any other system. Any control
deficiencies spotted by employees should be reported immediately to management.
True False
17. Separation of duties occurs when two or more people act in coordination to circumvent internal controls.
True False
18. Effective internal controls ensure a company's success and survival.
True False
19. The amount of cash reported in a company's balance sheet includes currency, coins, and balances in savings
and checking accounts, as well as items acceptable for deposit in these accounts, such as checks received
from customers.
True False
20. The amount of cash reported in a company's balance sheet includes items acceptable for deposit in bank
accounts, such as checks received from customers.
True False
21. The amount of cash reported in a company's balance sheet includes the balance of accounts receivable if
cash collection is highly likely in the near future.
True False
22. The amount of cash reported in a company's balance sheet does not include cash equivalents, defined as
short-term investments that have a maturity date no longer than three months from the date of purchase.
True False
23. Common examples of cash equivalents are money market funds, Treasury bills, and certificates of deposit.
True False
24. Recording all cash receipts as soon as possible is considered a good internal control.
True False
25. Opening mail and making a list of checks received once per week is considered a good internal control over
cash receipts.
True False
26. Whether a customer uses cash, a check, or a debit card to make a purchase, the company records the
transaction as a cash sale.
True False
27. When customers pay for services with a check, the company should debit Accounts Receivable and credit
Service Revenue.
True False
28. When customers pay for services with a debit card, the company should debit Cash and credit Service
Revenue.
True False
29. When a company pays for services received using a check, it should credit Accounts Payable until the
check is paid by the bank.
True False
30. When a company pays for services received using a credit card, it should credit Accounts Payable.
True False
31. Allowing the employee who authorizes purchases to also prepare the check is an example of good internal
control.
True False
32. Companies should set maximum purchase limits on debit cards and credit cards as part of internal controls.
True False
33. A bank reconciliation matches the balance of cash in the bank account with the balance of cash in the
company's own records.
True False
34. Differences in the company's cash balance and the bank's cash balance occur because of either timing
differences or errors.
True False
35. An example of a bank error that causes the company's balance and bank's balance of cash to differ is the
purchase of supplies with a check.
True False
36. Cash receipts of the company that have not been added to the bank's record of the company's balance are
referred to as checks outstanding.
True False
37. Checks outstanding are checks the company has written that have not been subtracted from the bank's
record of the company's balance.
True False
38. A deposit outstanding will cause the bank's cash balance to be higher than the company's cash balance.
True False
39. A check outstanding will cause the bank's cash balance to be higher than the company's cash balance.
True False
40. An NSF check is an example of a cash transaction that is initially recorded by the bank and later by the
company after notification.
True False
41. Interest earned on a bank account is an example of a cash transaction recorded by the company and then
later by the bank after notification.
True False
42. The final step in reconciling the bank's cash balance and the company's cash balance is to update the
company's cash balance for the items used to reconcile the bank's cash balance.
True False
43. The petty cash fund represents cash on hand and is used to pay for minor purchases.
True False
44. The petty cash fund should have just enough cash to make minor expenditures over a reasonable period
(such as a week or a month).
True False
45. A company's cash is reported in two financial statements - income statement and statement of cash flows.
True False
46. Cash is typically reported as a current asset in the balance sheet.
True False
47. The statement of cash flows reports a company's cash inflows and cash outflows related to (1) operating
activities, (2) investing activities, and (3) financing activities.
True False
48. Investing activities include cash transactions involving revenue and expense events during the period.
True False
49. Investing activities include cash investments in long-term assets and investment securities.
True False
50. Investing activities include transactions designed to raise cash or finance the business.
True False
51. Only transactions involving cash affect a company's cash flows.
True False
52. A company's operating cash inflows less operating cash outflows generally equals the reported amount of
net income in the income statement.
True False
53. Earnings quality is the ability of net income to report the true underlying performance of the company.
True False
54. A company's free cash flows equal operating cash flows plus financing cash flows during the period.
True False
55. Generally, when a company's net income and free cash flows trend in the same direction over time,
earnings are believed to have higher quality.
True False
56. What key piece of legislation was passed in response to corporate accounting scandals by Enron,
WorldCom, and others?
A. Sarbanes-Oxley Act.
B. 1933 Securities Act.
C. 1934 Securities Exchange Act.
D. Regulation Fair Disclosure.
57. Which of the following does not represent a major provision of the Sarbanes-Oxley Act?
A. Nonaudit services.
B. Quarterly financial statements.
C. Auditor rotation.
D. Corporate executive accountability.
58. Under the provisions of the Sarbanes-Oxley Act, corporate executives:
A. Risk assessment.
B. Inflation adjustment.
C. Monitoring.
D. Control activities.
63. Separation of duties refers to:
A. Upper management.
B. Mid-level managers.
C. Lower-level employees.
D. All employees.
65. Cash may not include:
A. Foreign currency.
B. Money orders.
C. Accounts receivable.
D. Undeposited customer checks.
66. Common examples of cash equivalents include all of the following except:
A. Make all disbursements, other than very small ones, by check, debit card, or credit card.
B. Require only one signature for checks, especially larger ones.
C. Authorize all expenditures before purchase and verify the accuracy of the purchase itself.
D. The employee who authorizes payment should not also be the employee who prepares the check.
72. Which of the following would NOT represent good controls over cash disbursements?
A. Periodically check amounts shown in the debit card and credit card statements against purchase receipts.
B The employee verifying the accuracy of the debit card and credit card statements should not also be the
. employee responsible for actual purchases.
C. Set maximum purchase limits on debit cards and credit cards.
D. Employees responsible for making cash disbursements should also be in charge of cash receipts.
73. Which of the following would NOT need to be accounted for in a bank reconciliation?
What is the amount of cash that should be reported in the company's balance sheet as of May 31?
A. $9,860.
B. $9,650.
C. $10,130.
D. $10,410.
75. Cash transactions recorded by the bank but not yet recorded by the company include all of the following
except
A. Service fees.
B. Interest earned.
C. Checks outstanding.
D. NSF checks.
76. The following information was taken from the bank reconciliation for Mooner Sooner Inc. at the end of
2012:
Bank balance: $8,000
Checks outstanding: $5,800
Note collected by the bank: $1,500
Service fee: $20
Deposits outstanding: $4,000
NSF check (bad check) returned for $300
What is the correct cash balance that should be reported in Mooner Sooner's balance sheet at the end of
2012?
A. $10,200.
B. $7,400.
C. $6,200.
D. $6,160.
77. Cash transactions that have been recorded by the company but not the bank include:
A. NSF checks.
B. Interest earned.
C. Service fees.
D. Deposits outstanding.
78. Which of the following is NOT a reason why a bank reconciliation is necessary?
A. The company has transactions that the bank has not recorded.
B. Petty cash has a low balance.
C. The bank has transactions that the company has not recorded.
D. Reconciliations provide a control over cash.
79. Which of the following is correct with respect to a bank reconciliation?
What is the amount of cash that should be reported in the balance sheet as of August 31?
A. $20,700.
B. $17,200.
C. $18,700.
D. $22,200.
85. The balance shown in the August bank statement of Colt Company was $23,200. After examining the
August bank statement and items included with it, the company's accountant found:
Checks outstanding $4,300
NSF check 140
Note collected by bank for the Colt Company 1,200
Deposits outstanding 1,800
Bank service fees 60
What is the amount of cash that should be reported in the balance sheet as of August 31?
A. $20,700.
B. $17,200.
C. $18,700.
D. $22,200.
86. A minor amount of cash kept on hand to pay for small purchases is referred to as a:
A. Lending.
B. The sale of equipment.
C. Borrowing.
D. The purchase of a building.
93. Cash flows from financing activities include:
A. Lending.
B. Salaries paid.
C. The sale of land.
D. Dividends paid.
94. Cash flows from investing activities do not include:
A. Borrowing.
B. The purchase of equipment.
C. The sale of land.
D. The purchase of a building.
95. Terastar Corp. reports the following amounts for 2012 and 2013:
A. $3,000.
B. $13,000.
C. $9,000.
D. $7,000.
96. Terastar Corp. reports the following amounts for 2012 and 2013.
99. Indicate whether the firm should add or subtract each item below from its
balance of cash or the bank's balance of cash in preparing a bank reconciliation.
100.A company's general ledger shows a cash balance of $4,570. Comparing the company's cash records with
the monthly bank statement reveals several additional cash transactions such as checks outstanding of
$2,840, bank service fees of $110, and interest earned of $15. Calculate the correct balance of cash.
101.A company's general ledger shows a cash balance of $2,380. Comparing the company's cash records with
the monthly bank statement reveals several additional cash transactions such as deposits outstanding of
$1,760, note collected by the bank on the company's behalf of $1,000, and interest earned of $20. The
company also finds an error by the bank of an additional deposit of $100. Calculate the correct balance of
cash.
102.A company's bank statement shows a cash balance of $4,230. Comparing the company's cash records with
the monthly bank statement reveals several additional cash transactions such as checks outstanding of
$3,880, deposits outstanding of $1,230, NSF check of $300, and service fee of $50. Calculate the correct
balance of cash.
103.A company's bank statement shows a cash balance of $4,170. Comparing the company's cash records with
the monthly bank statement reveals several additional cash transactions such as checks outstanding of
$2,110, NSF check of $200, interest earned of $30, service fee of $40, and a check for $150 recorded twice
by the company. Calculate the correct balance of cash.
104.A company's Cash account shows a balance of $3,450 at the end of the month. Comparing the company's
Cash account with the monthly bank statement reveals several additional cash transactions such as bank
service fees ($50), an NSF check from a customer ($300), a customer's note receivable collected by the
bank ($1,000), and interest earned ($100). Prepare the necessary entries to adjust the balance of cash.
105.A company's Cash account shows a balance of $5,680 at the end of the month. Comparing the company's
Cash account with the monthly bank statement reveals several additional cash transactions such as deposits
outstanding ($1,250), checks outstanding ($2,380), bank service fees ($40), an NSF check from a customer
($150), a customer's note receivable collected by the bank ($500), and interest earned ($60). Prepare the
necessary entries to adjust the balance of cash.
106.Peterson Company's general ledger shows a cash balance of $7,850 on May 31, 2012. May cash receipts
of $1,250, included in the general ledger balance, are placed in the night depository at the bank on May 31
and processed by the bank on June 1. The bank statement dated May 31 shows an NSF check for $200 and
a service fee of $50. The bank processes all checks written by the company by May 31 and lists them on
the bank statement, except for one check totaling $1,640. The bank statement shows a balance of $7,990 on
May 31. Prepare a bank reconciliation to calculate the correct ending balance of cash on May 31, 2012.
107.Madison Company's cash ledger reports the following for the month ending March 31, 2012.
Information from March's bank statement and company records reveals the following additional
information:
a. The ending cash balance recorded in the bank statement is $6,790.
b. Cash receipts of $2,100 from 3/26-3/31 are outstanding.
c. Checks 545 and 547 are outstanding.
d. The deposit on 3/11 included a customer's check for $400 that did not clear the bank (NSF
check).
e. Check 543 was written for $2,800 for office supplies in March. The bank properly recorded the check for
this amount.
f. An automatic withdrawal for March rent was made on March 4 for $1,500.
g. Madison's checking account earns interest based on the average daily balance. The amount of interest
earned for March is $50.
h. Last year, one of Madison's top executives borrowed $4,000 from Madison. On March 24, the executive
paid $4,200 ($4,000 borrowed amount plus $200 interest) directly to the bank in payment for the borrowing.
i. The bank charged the following service fees: $30 for NSF check, $10 for automatic withdrawal for rent
payment, and $20 for collection of the loan amount from the executive.
Prepare a bank reconciliation for March 31, 2012, and record the necessary cash adjustments.
108.A company establishes a petty cash fund for $400. By the end of the month, employees had made
the following expenditures from the fund: supplies, $150; fuel for deliveries, $120; postage, $75;
miscellaneous, $35. Record the entry to recognize expenditures from the petty cash fund.
109.A company establishes a $300 petty cash fund on August 3 to pay for minor cash expenditures. The fund is
replenished at the end of each month. At the end of August, the fund contains $40 in cash and the following
receipts:
Record the establishment of the petty cash fund on August 3, the expenditures of the fund, and
replenishment on August 31.
110.A company provides services on account during the current year totaling $400,000. By the end of the year,
$350,000 of this amount had been received. In addition, $75,000 was received on account from customers
for services provided in the prior year. Determine the amount of operating cash flows the company will
report as received from customers in the current year.
111.During the current year, a company provides services on account for $100,000. By the end of the year,
$60,000 of this amount had been received. In addition, cash payments for the year were employees'
salaries, $50,000; office supplies, $10,000; and utilities $20,000. Determine the amount of operating cash
flows the company will report in the current year.
112.During the current year, a company purchases equipment for $250,000, paying $50,000 immediately and
promising to pay the remainder within 30 days after the end of the year. Determine the amount of investing
cash flows the company will report in the current year.
113.At the beginning of the current year, a company issued stock for $100,000 and borrowed $50,000 from
the bank. By the end of the year, the company had provided services of $80,000 for cash, paid employee
salaries of $30,000, and paid utilities of $10,000. Determine the amount of financing cash flows the
company will report in the current year.
114.During the year, a company issues common stock for $50,000 and repays previously borrowed amounts
of $75,000. In addition, the company pays dividends of $5,000 to stockholders. Determine the amount of
financing cash flows the company will report in the current year.
115.Consider the following transactions:
1. Pay employees' salaries.
2. Repay borrowing to the bank.
3. Purchase equipment with note payable.
4. Provide services to customers on account.
5. Pay dividends to stockholders.
6. Collect cash from customers for services provided.
7. Purchase supplies on account.
8. Pay for supplies purchased in transaction 7 above.
For each transaction, indicate the type of cash flow involved based on the classifications in the statement of
cash flows. If a transaction does not involve cash, write ‘No Cash.'
Prepare a statement of cash flows for the month of April, properly classifying each of the transactions into
operating, investing, and financing activities. The cash balance at the beginning of April is $14,800.
The following answers point out the key phrases that should appear in students' answers. They are not
intended to be examples of complete student responses. It might be helpful to provide detailed instructions
to students on how brief or in-depth you want their answers to be.
118.Discuss the events leading up to the passage of the Sarbanes-Oxley Act and its major provisions.
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119.What is internal control? Briefly describe the five components of internal control outlined by the
Committee of Sponsoring Organizations (COSO).
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120.A company uses the following process for its cash receipts. At the end of each day, the secretary places all
cash and checks received from customers in a desk drawer. Each Monday, the secretary totals all amounts
received, records this in the accounting records, and deposits the money in the bank account. Then, once
every three months, the office manager requests information from the bank necessary to prepare a bank
reconciliation. Discuss the company's internal control procedures related to cash receipts.
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122.What is the purpose of the statement of cash flows? List the three major categories of cash flows and give
an example of a cash transaction for each category.
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123.What is the link between the balance sheet and the statement of cash flows? Describe the operating,
investing, and financing sections of the statement of cash flows.
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Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms.
Match each phrase with the best term by placing the letter designating the term in the space provided.
Terms:
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
124.____ Procedures for maintaining separation of duties.
Answer: c
125.____ PCAOB establishes standards related to the preparation of audited financial reports.
Answer: b
126.____ Formal policies to evaluate internal and external threats to achieving company objectives.
Answer: j
127.____ Audit firm cannot provide a variety of other services to its client, such as consulting.
Answer: e
128.____ Management must document the effectiveness of procedures that could affect financial reporting.
Answer: g
Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms.
Match each phrase with the best term by placing the letter designating the term in the space provided.
Terms:
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
129.____ Lead audit partners are required to change every five years.
Answer: i
130.____ Transfer of data from lower managers to top executives for accurate financial reporting.
Answer: h
133.____ Routine activities that are meant to continually observe internal control activities.
Answer: a
Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each
phrase with the best term by placing the letter designating the term in the space provided.
Terms:
a. Cash equivalent
b. Bank reconciliation
c. Petty cash
d. Debit card
e. Credit card
134.____ Minor amount of cash kept on hand.
Answer: c
135.____ Short-term investments that have a maturity date no longer than three months from the date of
purchase.
Answer: a
136.____ Matches the balance of cash in the bank account with the balance of cash in the company's own
records.
Answer: b
137.____ Withdraws funds directly from the user's account at the time of use.
Answer: d
138.____ Allows users to purchase items without having to pay cash immediately.
Answer: e
139.____ Fees imposed by the bank to the company for providing routine services.
Answer: a
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140.____ Checks written to the company that are returned by the bank as not having adequate funds.
Answer: d
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142.____ Checks written by the company but not yet recorded by the bank.
Answer: f
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143.____ Cash receipts received by the company but not yet recorded by the bank.
Answer: b
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144.____ Money earned on the average daily balance of the checking account.
Answer: c
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Listed below are six terms followed by a list of phrases that describe or characterize the terms. Match each
phrase with the best term by placing the letter designating the term in the space provided.
Terms:
a. Cash inflow from operating activities
b. Cash outflow from financing activities
c. Cash outflow from operating activities
d. Cash inflow from investing activities
e. Cash inflow from financing activities
f. Cash outflow from investing activities
145.____ Pay dividends to stockholders.
Answer: b
A. Zero.
B. One.
C. Two.
D. Three.
152.Consider the following cash flow items:
Pay amount owed to bank for previous borrowing.
Pay utility costs.
Purchase equipment to be used in operations.
Purchase office supplies.
Purchase one year of rent in advance.
Pay workers' salaries.
Pay for research and development costs.
Pay taxes to the IRS.
Sell common stock to investors.
How many of these cash flow items involve financing activities?
A. Zero.
B. One.
C. Two.
D. Three.
153.Regarding a bank reconciliation, which one of the following is an item recorded by the company but not by
the bank?
A. Checks outstanding.
B. Interest earned.
C. Service charges.
D. NSF checks.
154.Which of the following is correct regarding a petty cash fund?
A. Petty cash fund represents cash on hand at the business for quick access.
B. Petty cash fund is used for minor purposes.
C. When cash from this fund is taken out, it should be replaced with a voucher.
D. All of the above are correct.
155.The following information pertains to Sooner Company's cash balance and bank reconciliation as of August
31:
A. Option a
B. Option b
C. Option c
D. Option d
156.Which of the following best describes the goal of internal controls?
A. Cash is reported in both the balance sheet and the statement of cash flows.
B. Cash flows from buying and selling investments and long-term productive assets are called operating
cash flows.
C. Cash flows from transactions with stockholders and creditors are called financing cash flows.
D. Net cash flows reported in the statement of cash flows should equal the change in cash reported in the
balance sheet.
158.When preparing a bank reconciliation, a deposit outstanding would be:
A. The company's financial accountant should not share information with the company's tax accountant.
B. Duties of middle-level managers should be clearly separated from those of top executives.
C. Employee fraud is less likely to occur when access to assets and access to accounting records are
separated.
D. The external auditors of the company should have no contact with managers while the audit is taking
place.
164.Which of the following is considered cash for financial reporting purposes?
A. Accounts receivable.
B. Investments with maturity dates greater than three months.
C. Checks received from customers.
D. Accounts payable.
165.Payment of dividends to stockholders is considered a(n):
A. Top executives.
B. Mid-level managers.
C. Lower-level employees.
D. All employees.
170.Occupational fraud:
A Is the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of
. the employing organization's resources.
B. Occurs in only a few organizations and generally involves minor amounts.
C. Will be prevented when companies employ an auditor.
D. Is committed only by lower-level employees.
171.The act of collusion refers to:
A. Top management and lower-level employees working together to share information necessary for
effective internal controls.
B. Two or more people acting in coordination to circumvent internal controls.
C. Management working with an auditor to prevent occupational fraud.
D. Middle-level managers taking full responsibility for effective internal controls.
172.Which of the following is not an example of preventive controls?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Reconciliations.
173.Which of the following is an example of detective controls?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Reconciliations.
174.Keeping supplies in a locked room with access allowed only to authorized personnel is an example of
which preventive control?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Employee management.
175.Giving only management the right to make purchases over a certain amount is an example of which
preventive control?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Employee management.
176.Providing employees with appropriate guidance to ensure they have the knowledge necessary to carry out
their job duties is an example of which preventive control?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Employee management.
177.Having management periodically determine whether the amount of physical assets of the company match
the accounting records is an example of which detective control?
A. Separation of duties.
B. Reconciliations.
C. Performance reviews.
D. Employee management.
178.Checking actual outcome of individuals or processes against their expected outcome is an example of
which detective control?
A. Separation of duties.
B. Reconciliations.
C. Performance reviews.
D. Employee management.
179.Managers of the company act as stewards or caretakers of the company's assets.
True False
180.Common types of financial statement fraud include creating fictitious revenues from a fake customer,
improperly valuing assets, and mismatching revenues and expenses.
True False
181.In response to corporate accounting scandals and to public outrage over seemingly widespread unethical
behavior of top executives, Congress passed the Sarbanes-Oxley Act.
True False
182.The Sarbanes-Oxley Act is also known as Generally Accepted Accounting Principles.
True False
183.The Public Company Accounting Oversight Board (PCAOB) has the authority to establish standards
dealing with auditing, quality control, ethics, independence, and other activities relating to the preparation
of audited financial reports.
True False
184.Auditors of public companies can perform the full range of audit and nonaudit consulting services for their
audit clients.
True False
185.Section 404 of the Sarbanes-Oxley Act requires that a company's management document and assess the
effectiveness of all internal control processes that could affect financial reporting.
True False
186.Internal control is a company's plan to (1) improve the accuracy and reliability of accounting information
and (2) safeguard the company's assets.
True False
187.One benefit of internal control is greater reliance by investors on reported financial statements.
True False
188.A framework for designing an internal control system is provided by the Financial Accounting Standards
Board (FASB).
True False
189.The control environment refers to the overall top-to-bottom attitude of the company with respect to internal
controls.
True False
190.Risk assessment procedures include periodic reviews of internal controls, assessing management's
oversight of the internal control, developing solutions to known cases of internal control failures, and
determining whether each division or operation within a company is meeting its objectives.
True False
191.Separation of duties refers to auditors not being allowed to perform both audit and nonaudit services for the
same client.
True False
192.An example of separation of duties would be not allowing an employee who receives cash to also be
responsible for depositing that cash in the bank account.
True False
193.The internal control component of information and communication relates to the effectiveness of accurately
measuring and communicating business transactions.
True False
194.Management needs to monitor the internal control system, just like any other system. Any control
deficiencies spotted by employees should be reported immediately to management.
True False
195.Separation of duties occurs when two or more people act in coordination to circumvent internal controls.
True False
196.Effective internal controls ensure a company's success and survival.
True False
197.The amount of cash reported in a company's balance sheet includes currency, coins, and balances in savings
and checking accounts, as well as items acceptable for deposit in these accounts, such as checks received
from customers.
True False
198.The amount of cash reported in a company's balance sheet includes items acceptable for deposit in bank
accounts, such as checks received from customers.
True False
199.The amount of cash reported in a company's balance sheet includes the balance of accounts receivable if
cash collection is highly likely in the near future.
True False
200.The amount of cash reported in a company's balance sheet does not include cash equivalents, defined as
short-term investments that have a maturity date no longer than three months from the date of purchase.
True False
201.Common examples of cash equivalents are money market funds, Treasury bills, and certificates of deposit.
True False
202.Recording all cash receipts as soon as possible is considered a good internal control.
True False
203.Opening mail and making a list of checks received once per week is considered a good internal control over
cash receipts.
True False
204.Whether a customer uses cash, a check, or a debit card to make a purchase, the company records the
transaction as a cash sale.
True False
205.When customers pay for services with a check, the company should debit Accounts Receivable and credit
Service Revenue.
True False
206.When customers pay for services with a debit card, the company should debit Cash and credit Service
Revenue.
True False
207.When a company pays for services received using a check, it should credit Accounts Payable until the
check is paid by the bank.
True False
208.When a company pays for services received using a credit card, it should credit Accounts Payable.
True False
209.Allowing the employee who authorizes purchases to also prepare the check is an example of good internal
control.
True False
210.Companies should set maximum purchase limits on debit cards and credit cards as part of internal controls.
True False
211.A bank reconciliation matches the balance of cash in the bank account with the balance of cash in the
company's own records.
True False
212.Differences in the company's cash balance and the bank's cash balance occur because of either timing
differences or errors.
True False
213.An example of a bank error that causes the company's balance and bank's balance of cash to differ is the
purchase of supplies with a check.
True False
214.Cash receipts of the company that have not been added to the bank's record of the company's balance are
referred to as checks outstanding.
True False
215.Checks outstanding are checks the company has written that have not been subtracted from the bank's
record of the company's balance.
True False
216.A deposit outstanding will cause the bank's cash balance to be higher than the company's cash balance.
True False
217.A check outstanding will cause the bank's cash balance to be higher than the company's cash balance.
True False
218.An NSF check is an example of a cash transaction that is initially recorded by the bank and later by the
company after notification.
True False
219.Interest earned on a bank account is an example of a cash transaction recorded by the company and then
later by the bank after notification.
True False
220.The final step in reconciling the bank's cash balance and the company's cash balance is to update the
company's cash balance for the items used to reconcile the bank's cash balance.
True False
221.The petty cash fund represents cash on hand and is used to pay for minor purchases.
True False
222.The petty cash fund should have just enough cash to make minor expenditures over a reasonable period
(such as a week or a month).
True False
223.A company's cash is reported in two financial statements - income statement and statement of cash flows.
True False
224.Cash is typically reported as a current asset in the balance sheet.
True False
225.The statement of cash flows reports a company's cash inflows and cash outflows related to (1) operating
activities, (2) investing activities, and (3) financing activities.
True False
226.Investing activities include cash transactions involving revenue and expense events during the period.
True False
227.Investing activities include cash investments in long-term assets and investment securities.
True False
228.Investing activities include transactions designed to raise cash or finance the business.
True False
229.Only transactions involving cash affect a company's cash flows.
True False
230.A company's operating cash inflows less operating cash outflows generally equals the reported amount of
net income in the income statement.
True False
231.Earnings quality is the ability of net income to report the true underlying performance of the company.
True False
232.A company's free cash flows equal operating cash flows plus financing cash flows during the period.
True False
233.Generally, when a company's net income and free cash flows trend in the same direction over time,
earnings are believed to have higher quality.
True False
234.What key piece of legislation was passed in response to corporate accounting scandals by Enron,
WorldCom, and others?
A. Sarbanes-Oxley Act.
B. 1933 Securities Act.
C. 1934 Securities Exchange Act.
D. Regulation Fair Disclosure.
235.Which of the following does not represent a major provision of the Sarbanes-Oxley Act?
A. Nonaudit services.
B. Quarterly financial statements.
C. Auditor rotation.
D. Corporate executive accountability.
236.Under the provisions of the Sarbanes-Oxley Act, corporate executives:
A. Risk assessment.
B. Inflation adjustment.
C. Monitoring.
D. Control activities.
241.Separation of duties refers to:
A. Upper management.
B. Mid-level managers.
C. Lower-level employees.
D. All employees.
243.Cash may not include:
A. Foreign currency.
B. Money orders.
C. Accounts receivable.
D. Undeposited customer checks.
244.Common examples of cash equivalents include all of the following except:
A. Make all disbursements, other than very small ones, by check, debit card, or credit card.
B. Require only one signature for checks, especially larger ones.
C. Authorize all expenditures before purchase and verify the accuracy of the purchase itself.
D. The employee who authorizes payment should not also be the employee who prepares the check.
250.Which of the following would NOT represent good controls over cash disbursements?
A. Periodically check amounts shown in the debit card and credit card statements against purchase receipts.
B The employee verifying the accuracy of the debit card and credit card statements should not also be the
. employee responsible for actual purchases.
C. Set maximum purchase limits on debit cards and credit cards.
D. Employees responsible for making cash disbursements should also be in charge of cash receipts.
251.Which of the following would NOT need to be accounted for in a bank reconciliation?
What is the amount of cash that should be reported in the company's balance sheet as of May 31?
A. $9,860.
B. $9,650.
C. $10,130.
D. $10,410.
253.Cash transactions recorded by the bank but not yet recorded by the company include all of the following
except
A. Service fees.
B. Interest earned.
C. Checks outstanding.
D. NSF checks.
254.The following information was taken from the bank reconciliation for Mooner Sooner Inc. at the end of
2012:
Bank balance: $8,000
Checks outstanding: $5,800
Note collected by the bank: $1,500
Service fee: $20
Deposits outstanding: $4,000
NSF check (bad check) returned for $300
What is the correct cash balance that should be reported in Mooner Sooner's balance sheet at the end of
2012?
A. $10,200.
B. $7,400.
C. $6,200.
D. $6,160.
255.Cash transactions that have been recorded by the company but not the bank include:
A. NSF checks.
B. Interest earned.
C. Service fees.
D. Deposits outstanding.
256.Which of the following is NOT a reason why a bank reconciliation is necessary?
A. The company has transactions that the bank has not recorded.
B. Petty cash has a low balance.
C. The bank has transactions that the company has not recorded.
D. Reconciliations provide a control over cash.
257.Which of the following is correct with respect to a bank reconciliation?
What is the amount of cash that should be reported in the balance sheet as of August 31?
A. $20,700.
B. $17,200.
C. $18,700.
D. $22,200.
263.The balance shown in the August bank statement of Colt Company was $23,200. After examining the
August bank statement and items included with it, the company's accountant found:
Checks outstanding $4,300
NSF check 140
Note collected by bank for the Colt Company 1,200
Deposits outstanding 1,800
Bank service fees 60
What is the amount of cash that should be reported in the balance sheet as of August 31?
A. $20,700.
B. $17,200.
C. $18,700.
D. $22,200.
264.A minor amount of cash kept on hand to pay for small purchases is referred to as a:
A. Lending.
B. The sale of equipment.
C. Borrowing.
D. The purchase of a building.
271.Cash flows from financing activities include:
A. Lending.
B. Salaries paid.
C. The sale of land.
D. Dividends paid.
272.Cash flows from investing activities do not include:
A. Borrowing.
B. The purchase of equipment.
C. The sale of land.
D. The purchase of a building.
273.Terastar Corp. reports the following amounts for 2012 and 2013:
A. $3,000.
B. $13,000.
C. $9,000.
D. $7,000.
274.Terastar Corp. reports the following amounts for 2012 and 2013.
278.A company's general ledger shows a cash balance of $4,570. Comparing the company's cash records with
the monthly bank statement reveals several additional cash transactions such as checks outstanding of
$2,840, bank service fees of $110, and interest earned of $15. Calculate the correct balance of cash.
279.A company's general ledger shows a cash balance of $2,380. Comparing the company's cash records with
the monthly bank statement reveals several additional cash transactions such as deposits outstanding of
$1,760, note collected by the bank on the company's behalf of $1,000, and interest earned of $20. The
company also finds an error by the bank of an additional deposit of $100. Calculate the correct balance of
cash.
280.A company's bank statement shows a cash balance of $4,230. Comparing the company's cash records with
the monthly bank statement reveals several additional cash transactions such as checks outstanding of
$3,880, deposits outstanding of $1,230, NSF check of $300, and service fee of $50. Calculate the correct
balance of cash.
281.A company's bank statement shows a cash balance of $4,170. Comparing the company's cash records with
the monthly bank statement reveals several additional cash transactions such as checks outstanding of
$2,110, NSF check of $200, interest earned of $30, service fee of $40, and a check for $150 recorded twice
by the company. Calculate the correct balance of cash.
282.A company's Cash account shows a balance of $3,450 at the end of the month. Comparing the company's
Cash account with the monthly bank statement reveals several additional cash transactions such as bank
service fees ($50), an NSF check from a customer ($300), a customer's note receivable collected by the
bank ($1,000), and interest earned ($100). Prepare the necessary entries to adjust the balance of cash.
283.A company's Cash account shows a balance of $5,680 at the end of the month. Comparing the company's
Cash account with the monthly bank statement reveals several additional cash transactions such as deposits
outstanding ($1,250), checks outstanding ($2,380), bank service fees ($40), an NSF check from a customer
($150), a customer's note receivable collected by the bank ($500), and interest earned ($60). Prepare the
necessary entries to adjust the balance of cash.
284.Peterson Company's general ledger shows a cash balance of $7,850 on May 31, 2012. May cash receipts
of $1,250, included in the general ledger balance, are placed in the night depository at the bank on May 31
and processed by the bank on June 1. The bank statement dated May 31 shows an NSF check for $200 and
a service fee of $50. The bank processes all checks written by the company by May 31 and lists them on
the bank statement, except for one check totaling $1,640. The bank statement shows a balance of $7,990 on
May 31. Prepare a bank reconciliation to calculate the correct ending balance of cash on May 31, 2012.
285.Madison Company's cash ledger reports the following for the month ending March 31, 2012.
Information from March's bank statement and company records reveals the following additional
information:
a. The ending cash balance recorded in the bank statement is $6,790.
b. Cash receipts of $2,100 from 3/26-3/31 are outstanding.
c. Checks 545 and 547 are outstanding.
d. The deposit on 3/11 included a customer's check for $400 that did not clear the bank (NSF
check).
e. Check 543 was written for $2,800 for office supplies in March. The bank properly recorded the check for
this amount.
f. An automatic withdrawal for March rent was made on March 4 for $1,500.
g. Madison's checking account earns interest based on the average daily balance. The amount of interest
earned for March is $50.
h. Last year, one of Madison's top executives borrowed $4,000 from Madison. On March 24, the executive
paid $4,200 ($4,000 borrowed amount plus $200 interest) directly to the bank in payment for the borrowing.
i. The bank charged the following service fees: $30 for NSF check, $10 for automatic withdrawal for rent
payment, and $20 for collection of the loan amount from the executive.
Prepare a bank reconciliation for March 31, 2012, and record the necessary cash adjustments.
286.A company establishes a petty cash fund for $400. By the end of the month, employees had made
the following expenditures from the fund: supplies, $150; fuel for deliveries, $120; postage, $75;
miscellaneous, $35. Record the entry to recognize expenditures from the petty cash fund.
287.A company establishes a $300 petty cash fund on August 3 to pay for minor cash expenditures. The fund is
replenished at the end of each month. At the end of August, the fund contains $40 in cash and the following
receipts:
Record the establishment of the petty cash fund on August 3, the expenditures of the fund, and
replenishment on August 31.
288.A company provides services on account during the current year totaling $400,000. By the end of the year,
$350,000 of this amount had been received. In addition, $75,000 was received on account from customers
for services provided in the prior year. Determine the amount of operating cash flows the company will
report as received from customers in the current year.
289.During the current year, a company provides services on account for $100,000. By the end of the year,
$60,000 of this amount had been received. In addition, cash payments for the year were employees'
salaries, $50,000; office supplies, $10,000; and utilities $20,000. Determine the amount of operating cash
flows the company will report in the current year.
290.During the current year, a company purchases equipment for $250,000, paying $50,000 immediately and
promising to pay the remainder within 30 days after the end of the year. Determine the amount of investing
cash flows the company will report in the current year.
291.At the beginning of the current year, a company issued stock for $100,000 and borrowed $50,000 from
the bank. By the end of the year, the company had provided services of $80,000 for cash, paid employee
salaries of $30,000, and paid utilities of $10,000. Determine the amount of financing cash flows the
company will report in the current year.
292.During the year, a company issues common stock for $50,000 and repays previously borrowed amounts
of $75,000. In addition, the company pays dividends of $5,000 to stockholders. Determine the amount of
financing cash flows the company will report in the current year.
293.Consider the following transactions:
1. Pay employees' salaries.
2. Repay borrowing to the bank.
3. Purchase equipment with note payable.
4. Provide services to customers on account.
5. Pay dividends to stockholders.
6. Collect cash from customers for services provided.
7. Purchase supplies on account.
8. Pay for supplies purchased in transaction 7 above.
For each transaction, indicate the type of cash flow involved based on the classifications in the statement of
cash flows. If a transaction does not involve cash, write ‘No Cash.'
Prepare a statement of cash flows for the month of April, properly classifying each of the transactions into
operating, investing, and financing activities. The cash balance at the beginning of April is $14,800.
296.Discuss the events leading up to the passage of the Sarbanes-Oxley Act and its major provisions.
04-119
297.What is internal control? Briefly describe the five components of internal control outlined by the
Committee of Sponsoring Organizations (COSO).
04-119
298.A company uses the following process for its cash receipts. At the end of each day, the secretary places all
cash and checks received from customers in a desk drawer. Each Monday, the secretary totals all amounts
received, records this in the accounting records, and deposits the money in the bank account. Then, once
every three months, the office manager requests information from the bank necessary to prepare a bank
reconciliation. Discuss the company's internal control procedures related to cash receipts.
04-119
300.What is the purpose of the statement of cash flows? List the three major categories of cash flows and give
an example of a cash transaction for each category.
04-119
301.What is the link between the balance sheet and the statement of cash flows? Describe the operating,
investing, and financing sections of the statement of cash flows.
04-119
302.____ Procedures for maintaining separation of duties.
Answer: c
303.____ PCAOB establishes standards related to the preparation of audited financial reports.
Answer: b
304.____ Formal policies to evaluate internal and external threats to achieving company objectives.
Answer: j
305.____ Audit firm cannot provide a variety of other services to its client, such as consulting.
Answer: e
306.____ Management must document the effectiveness of procedures that could affect financial reporting.
Answer: g
307.____ Lead audit partners are required to change every five years.
Answer: i
308.____ Transfer of data from lower managers to top executives for accurate financial reporting.
Answer: h
311.____ Routine activities that are meant to continually observe internal control activities.
Answer: a
313.____ Short-term investments that have a maturity date no longer than three months from the date of
purchase.
Answer: a
314.____ Matches the balance of cash in the bank account with the balance of cash in the company's own
records.
Answer: b
315.____ Withdraws funds directly from the user's account at the time of use.
Answer: d
316.____ Allows users to purchase items without having to pay cash immediately.
Answer: e
317.____ Fees imposed by the bank to the company for providing routine services.
Answer: a
04-139
318.____ Checks written to the company that are returned by the bank as not having adequate funds.
Answer: d
04-139
320.____ Checks written by the company but not yet recorded by the bank.
Answer: f
04-139
321.____ Cash receipts received by the company but not yet recorded by the bank.
Answer: b
04-139
322.____ Money earned on the average daily balance of the checking account.
Answer: c
04-139
A. Zero.
B. One.
C. Two.
D. Three.
330.Consider the following cash flow items:
Pay amount owed to bank for previous borrowing.
Pay utility costs.
Purchase equipment to be used in operations.
Purchase office supplies.
Purchase one year of rent in advance.
Pay workers' salaries.
Pay for research and development costs.
Pay taxes to the IRS.
Sell common stock to investors.
How many of these cash flow items involve financing activities?
A. Zero.
B. One.
C. Two.
D. Three.
331.Regarding a bank reconciliation, which one of the following is an item recorded by the company but not by
the bank?
A. Checks outstanding.
B. Interest earned.
C. Service charges.
D. NSF checks.
332.Which of the following is correct regarding a petty cash fund?
A. Petty cash fund represents cash on hand at the business for quick access.
B. Petty cash fund is used for minor purposes.
C. When cash from this fund is taken out, it should be replaced with a voucher.
D. All of the above are correct.
333.The following information pertains to Sooner Company's cash balance and bank reconciliation as of August
31:
A. Option a
B. Option b
C. Option c
D. Option d
334.Which of the following best describes the goal of internal controls?
A. Cash is reported in both the balance sheet and the statement of cash flows.
B. Cash flows from buying and selling investments and long-term productive assets are called operating
cash flows.
C. Cash flows from transactions with stockholders and creditors are called financing cash flows.
D. Net cash flows reported in the statement of cash flows should equal the change in cash reported in the
balance sheet.
336.When preparing a bank reconciliation, a deposit outstanding would be:
A. The company's financial accountant should not share information with the company's tax accountant.
B. Duties of middle-level managers should be clearly separated from those of top executives.
C. Employee fraud is less likely to occur when access to assets and access to accounting records are
separated.
D. The external auditors of the company should have no contact with managers while the audit is taking
place.
342.Which of the following is considered cash for financial reporting purposes?
A. Accounts receivable.
B. Investments with maturity dates greater than three months.
C. Checks received from customers.
D. Accounts payable.
343.Payment of dividends to stockholders is considered a(n):
A. Top executives.
B. Mid-level managers.
C. Lower-level employees.
D. All employees.
348.Occupational fraud:
A Is the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of
. the employing organization's resources.
B. Occurs in only a few organizations and generally involves minor amounts.
C. Will be prevented when companies employ an auditor.
D. Is committed only by lower-level employees.
349.The act of collusion refers to:
A. Top management and lower-level employees working together to share information necessary for
effective internal controls.
B. Two or more people acting in coordination to circumvent internal controls.
C. Management working with an auditor to prevent occupational fraud.
D. Middle-level managers taking full responsibility for effective internal controls.
350.Which of the following is not an example of preventive controls?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Reconciliations.
351.Which of the following is an example of detective controls?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Reconciliations.
352.Keeping supplies in a locked room with access allowed only to authorized personnel is an example of
which preventive control?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Employee management.
353.Giving only management the right to make purchases over a certain amount is an example of which
preventive control?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Employee management.
354.Providing employees with appropriate guidance to ensure they have the knowledge necessary to carry out
their job duties is an example of which preventive control?
A. Separation of duties.
B. Physical controls.
C. Proper authorization.
D. Employee management.
355.Having management periodically determine whether the amount of physical assets of the company match
the accounting records is an example of which detective control?
A. Separation of duties.
B. Reconciliations.
C. Performance reviews.
D. Employee management.
356.Checking actual outcome of individuals or processes against their expected outcome is an example of
which detective control?
A. Separation of duties.
B. Reconciliations.
C. Performance reviews.
D. Employee management.
Ch4 Key
1. TRUE
2. TRUE
3. TRUE
4. FALSE
5. TRUE
6. FALSE
7. TRUE
8. TRUE
9. TRUE
10. FALSE
11. TRUE
12. TRUE
13. FALSE
14. TRUE
15. TRUE
16. TRUE
17. FALSE
18. FALSE
19. TRUE
20. TRUE
21. FALSE
22. FALSE
23. TRUE
24. TRUE
25. FALSE
26. TRUE
27. FALSE
28. TRUE
29. FALSE
30. TRUE
31. FALSE
32. TRUE
33. TRUE
34. TRUE
35. FALSE
36. FALSE
37. TRUE
38. FALSE
39. TRUE
40. TRUE
41. FALSE
42. FALSE
43. TRUE
44. TRUE
45. FALSE
46. TRUE
47. TRUE
48. FALSE
49. TRUE
50. FALSE
51. TRUE
52. FALSE
53. TRUE
54. FALSE
55. TRUE
56. A
57. B
58. C
59. D
60. C
61. A
62. B
63. D
64. D
65. C
66. D
67. B
68. D
69. C
70. B
71. B
72. D
73. D
74. C
75. C
76. C
77. D
78. B
79. C
80. A
81. D
82. D
83. C
84. A
85. A
86. A
87. C
88. D
89. B
90. C
91. C
92. C
93. D
94. A
95. C
96. A
97. $1,500,000
98.
99.
100. $4,475
101. $3,400
102. $1,580
103. $2,060
104.
105.
106.
107.
108.
109.
110. $425,000
111. -$20,000
112. ($50,000)
113. $150,000
114. -$30,000
115. 1. Operating.
2. Financing.
3. No Cash.
4. No Cash.
5. Financing.
6. Operating.
7. No Cash.
8. Operating.
116. Operating activities = $8,500; Investing activities = -$2,000; Financing activities = $3,200
117.
118. Two of the highest-profile cases (Enron and WorldCom) of fraudulent financial reporting in 2001 and 2002, as well as other fraudulent reporting
by many others, led Congress to pass the Sarbanes-Oxley Act. Fraudulent financial reporting was associated with poor social consequences such as
bankruptcy, employee termination, reduced salaries, increased workloads, and loss of employee retirement funds, stock options, and health benefits.
The major provisions of the Sarbanes-Oxley Act include formation of the Public Company Accounting Oversight Board (PCAOB), corporate
executive accountability, limitation on nonaudit services, retention of work papers, auditor rotation, restrictions related to conflicts of interest, audit
committee hires the auditor, and documentation of internal control.
119. Internal control is a company's plan to (1) improve the accuracy and reliability of accounting information and (2) safeguard the company's
assets.
1. Control Environment - overall top-to-bottom attitude of the company with respect to internal controls.
2. Risk Assessment - development of formal policies to assess the risk that internal or external sources are preventing a company from achieving its
objectives.
3. Control Activities - systems for approving cash payments, authorizing purchases, reviewing operating performance, and safeguarding assets.
4. Monitoring - Continuous observation of the internal control system.
5. Information and Communication - systems designed to ensure accurate measurement of business transactions and reliability of financial reports.
120. Cash should be recorded and deposited daily. The employee recording cash receipts should not also be the employee making the deposit. The
bank reconciliation should be prepared monthly by a person with no other cash responsibilities.
121. For the bank's cash balance, deposits outstanding should be added and checks outstanding should be subtracted. For the company's cash
balance, notes collected by the bank and interest earned should be added; service fees and NSF checks should be subtracted. As a final step in the
reconciliation process, the company must record cash items used to reconcile the company's cash balance.
122. The purpose of the statement of cash flows is to summarize the transactions that caused cash to change during the reporting period. The
statement of cash flows summarizes cash flows in three categories: operating, investing, and financing. Operating activities include cash flows related
to transactions entering into the determination of net income, such as cash collections from customers, payments for operating expenses, and other
receipts such as interest and dividends. Investing activities include purchasing and selling long-term assets or certain investment securities. Financing
activities include borrowing or repaying loans, issuing stock, and payment of dividends.
123. The balance sheet reports the final balance of cash at the end of the reporting period. The statement of cash flows reports inflows and outflows
of cash during the reporting period. The beginning balance of cash plus net cash flows reported in the statement of cash flows equals the ending
balance of cash reported in the balance sheet. Operating activities include cash transactions involving revenue and expense events during the period.
Investing activities include cash investments in long-term assets and investment securities. Financing activities include transactions designed to raise
cash or finance the business.
124.
125.
126.
127.
128.
129.
130.
131.
132.
133.
134.
135.
136.
137.
138.
139.
140.
141.
142.
143.
144.
145.
146.
147.
148.
149.
150.
151. B
152. C
153. A
154. D
155. A
156. C
157. B
158. B
159. D
160. D
161. B
162. C
163. C
164. C
165. C
166. D
167. C
168. D
169. A
170. A
171. B
172. D
173. D
174. B
175. C
176. D
177. B
178. C
179. TRUE
180. TRUE
181. TRUE
182. FALSE
183. TRUE
184. FALSE
185. TRUE
186. TRUE
187. TRUE
188. FALSE
189. TRUE
190. TRUE
191. FALSE
192. TRUE
193. TRUE
194. TRUE
195. FALSE
196. FALSE
197. TRUE
198. TRUE
199. FALSE
200. FALSE
201. TRUE
202. TRUE
203. FALSE
204. TRUE
205. FALSE
206. TRUE
207. FALSE
208. TRUE
209. FALSE
210. TRUE
211. TRUE
212. TRUE
213. FALSE
214. FALSE
215. TRUE
216. FALSE
217. TRUE
218. TRUE
219. FALSE
220. FALSE
221. TRUE
222. TRUE
223. FALSE
224. TRUE
225. TRUE
226. FALSE
227. TRUE
228. FALSE
229. TRUE
230. FALSE
231. TRUE
232. FALSE
233. TRUE
234. A
235. B
236. C
237. D
238. C
239. A
240. B
241. D
242. D
243. C
244. D
245. B
246. D
247. C
248. B
249. B
250. D
251. D
252. C
253. C
254. C
255. D
256. B
257. C
258. A
259. D
260. D
261. C
262. A
263. A
264. A
265. C
266. D
267. B
268. C
269. C
270. C
271. D
272. A
273. C
274. A
275. $1,500,000
276.
277.
278. $4,475
279. $3,400
280. $1,580
281. $2,060
282.
283.
284.
285.
286.
287.
288. $425,000
289. -$20,000
290. ($50,000)
291. $150,000
292. -$30,000
293. 1. Operating.
2. Financing.
3. No Cash.
4. No Cash.
5. Financing.
6. Operating.
7. No Cash.
8. Operating.
294. Operating activities = $8,500; Investing activities = -$2,000; Financing activities = $3,200
295.
296. Two of the highest-profile cases (Enron and WorldCom) of fraudulent financial reporting in 2001 and 2002, as well as other fraudulent reporting
by many others, led Congress to pass the Sarbanes-Oxley Act. Fraudulent financial reporting was associated with poor social consequences such as
bankruptcy, employee termination, reduced salaries, increased workloads, and loss of employee retirement funds, stock options, and health benefits.
The major provisions of the Sarbanes-Oxley Act include formation of the Public Company Accounting Oversight Board (PCAOB), corporate
executive accountability, limitation on nonaudit services, retention of work papers, auditor rotation, restrictions related to conflicts of interest, audit
committee hires the auditor, and documentation of internal control.
297. Internal control is a company's plan to (1) improve the accuracy and reliability of accounting information and (2) safeguard the company's
assets.
1. Control Environment - overall top-to-bottom attitude of the company with respect to internal controls.
2. Risk Assessment - development of formal policies to assess the risk that internal or external sources are preventing a company from achieving its
objectives.
3. Control Activities - systems for approving cash payments, authorizing purchases, reviewing operating performance, and safeguarding assets.
4. Monitoring - Continuous observation of the internal control system.
5. Information and Communication - systems designed to ensure accurate measurement of business transactions and reliability of financial reports.
298. Cash should be recorded and deposited daily. The employee recording cash receipts should not also be the employee making the deposit. The
bank reconciliation should be prepared monthly by a person with no other cash responsibilities.
299. For the bank's cash balance, deposits outstanding should be added and checks outstanding should be subtracted. For the company's cash
balance, notes collected by the bank and interest earned should be added; service fees and NSF checks should be subtracted. As a final step in the
reconciliation process, the company must record cash items used to reconcile the company's cash balance.
300. The purpose of the statement of cash flows is to summarize the transactions that caused cash to change during the reporting period. The
statement of cash flows summarizes cash flows in three categories: operating, investing, and financing. Operating activities include cash flows related
to transactions entering into the determination of net income, such as cash collections from customers, payments for operating expenses, and other
receipts such as interest and dividends. Investing activities include purchasing and selling long-term assets or certain investment securities. Financing
activities include borrowing or repaying loans, issuing stock, and payment of dividends.
301. The balance sheet reports the final balance of cash at the end of the reporting period. The statement of cash flows reports inflows and outflows
of cash during the reporting period. The beginning balance of cash plus net cash flows reported in the statement of cash flows equals the ending
balance of cash reported in the balance sheet. Operating activities include cash transactions involving revenue and expense events during the period.
Investing activities include cash investments in long-term assets and investment securities. Financing activities include transactions designed to raise
cash or finance the business.
302.
303.
304.
305.
306.
307.
308.
309.
310.
311.
312.
313.
314.
315.
316.
317.
318.
319.
320.
321.
322.
323.
324.
325.
326.
327.
328.
329. B
330. C
331. A
332. D
333. A
334. C
335. B
336. B
337. D
338. D
339. B
340. C
341. C
342. C
343. C
344. D
345. C
346. D
347. A
348. A
349. B
350. D
351. D
352. B
353. C
354. D
355. B
356. C
Ch4 Summary
Category # of Questions
AACSB: Analytic 82
AACSB: Ethics 12
AACSB: Reflective Thinking 262
AICPA: Critical Thinking 206
AICPA: Decision Making 4
AICPA: Measurement 96
AICPA: Reporting 50
Blooms: Analysis 31
Blooms: Analysis 31
Blooms: Application 3
Blooms: Application 3
Blooms: Comprehension 73
Blooms: Comprehension 73
Blooms: Evaluation 4
Blooms: Evaluation 4
Blooms: Knowledge 63
Blooms: Knowledge 63
Blooms: Synthesis 4
Blooms: Synthesis 4
Difficulty: Easy 110
Difficulty: Hard 64
Difficulty: Hard (or Medium??) Other similar questions are coded "Medium" (see Questions 101-105). 2
Difficulty: Medium 180
Learning Objective: 04-01 Discuss the impact of accounting scandals and the passage of the Sarbanes-Oxley Act. 50
Learning Objective: 04-02 Identify the components; responsibilities; and limitations of internal control. 76
Learning Objective: 04-03 Define cash and cash equivalents. 26
Learning Objective: 04-04 Understand controls over cash receipts and cash disbursements. 48
Learning Objective: 04-05 Reconcile a bank statement. 96
Learning Objective: 04-06 Account for petty cash. 26
Learning Objective: 04-07 Identify the major inflows and outflows of cash. 72
Learning Objective: 04-08 Assess earnings quality by comparing net income and cash flows. 12
Spiceland - Chapter 04 361