Test bank accounting 25th editon warren chapter 8 sarbanes oxley, internal control, and cash

In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added to the balance per company's records... After a bank reconciliation is complete

Chapter 8 Sarbanes-Oxley, Internal Control, and Cash

3 There are two internal control objectives and they are to ensure accurate financial reports, and ensure

compliance with applicable laws

8 Internal control is enhanced by separating the control of a transaction from the record-keeping function True False

14 When a clerk enters a sale and the customer can see the amount displayed and is given a cash receipt, this is

an example of a preventive control

17 An example of good internal controls over cash payments is the taking of all cash discounts offered True False

22 A payment system that uses computerized electronic impulses to effect a cash transaction is called

electronic funds transfer (EFT)

25 Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances

on the bank's records

True False

26 Depositing all cash, checks, etc in a bank and paying with checks is an internal control procedure over cash

30 In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added

to the balance per company's records

34 The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date

37 The main reason that the bank statement cash balance and the company's cash balance do not initially

balance is due to timing differences

42 After a bank reconciliation is completed, adjusting entries are prepared for items in the balance per

company's records as well as items in the balance per bank statement

True False

43 A business that requires all cash payments be made by check can not use a petty cash system

48 Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately

on the balance sheet

52 Cash equivalents are short -term investments that will be converted to cash within 120 days

56 Which one of the following below is not a factor that influences a business's control environment?

A management's philosophy and operating style

C proofs and security measures

D separating responsibilities for related operations

58 The objectives of internal control are to

A control the internal organization of the accounting department personnel and equipment

B provide reasonable assurance that operations are managed to achieve goals, financial reports are accurate, and laws and regulations are complied with

C prevent fraud, and promote the social interest of the company

D provide control over "internal-use only" reports and employee internal conduct

59 Which one of the following below reflects a weak internal control system?

A all employees are well supervised

B a single employee is responsible for comparing a receiving report to an invoice

C all employees must take their vacations

D a single employee is responsible for collecting and recording of cash

60 Internal control does not consist of policies and procedures that

A protect assets from misuse

B aid management in directing operations toward achieving business goals

C guarantee the company will not go bankrupt

D ensure that business information is accurate

61 A firm's internal control environment is not influenced by

A management's operating style

64 In management's internal control report that is now required of all public companies, which of the following

does not have a direct effect on a company's internal control system?

65 Which of the following should not be considered cash by an accountant?

66 The cash account in the company's ledger is a(n)

A asset with a debit balance

B asset with a credit balance

C liability with a debit balance

D liability with a credit balance

68 The debit balance in Cash Short and Over at the end of an accounting period is reported as

A an expense on the income statement

B income on the income statement

C an asset on the balance sheet

D a liability on the balance sheet

69 An example of a preventive control is

A a single person handles the responsibilities for operations, custody of assets, and accounting

B separation of the Purchasing Department and Accounting Department personnel

C bonding employees who handle cash

D accepting payment in currency only

71 A special form on which is recorded pertinent data about a liability and the particulars of its payment is called a(n)

A means Efficient Funds Transfer

B can process certain cash transactions at less cost than by using the mail

C makes it easier to document purchase and sale transactions

D means Effective Funds Transfer

73 A voucher

A is received from customers to explain the purpose of a payment

B is normally prepared in the Accounting Department

C system is used to control cash receipts

D system is an internal control procedure to verify that the assets in the ledger are the ones the company owns

76 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 All cash receipts should be recorded promptly

C The functions of record keeping and maintaining custody of cash should be combined

D Surprise audits of cash on hand should be made occasionally

77 The term cash includes

A coins, currency (paper money), checks

B money orders, and money on deposit that is available for unrestricted withdrawal

79 Credit memos from the bank

A decrease a bank customer's account

B are used to show a bank service charge

C show that a company has deposited a customer's NSF check

D show the bank has collected a note receivable for the customer

80 A bank statement

A is a credit reference letter written by the company's bank

B lets a company know the financial position of the bank as of a certain date

C is a bill from the bank for services rendered

D shows the activity that increased or decreased the company's account balance

81 Which one of the following would not cause a bank to debit a company's account?

A Bank service charge

B Collection of a note receivable

C Checks marked NSF

D Wiring of funds to other locations

82 There are three parties to a check The drawer is

A a written document signed by the company

B is the one who signs the check ordering payment by the bank

C the bank on which the check is drawn

D the party to whom payment is to be made

83 A debit or credit memo describing entries in the company's bank account may be enclosed with the bank statement An example of a credit memo is

A deposited checks returned for insufficient funds

B a promissory note left for collection

A deducted from the balance per company's records

B deducted from the balance per bank statement

C added to the balance per bank statement

D added to the balance per company's records

A addition to the balance per the company's records

B addition to the balance per the bank statement

C deduction from the balance per the bank statement

D deduction from the balance per the company's records

87 A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430 What entry is required in the company's accounts?

A debit Accounts Payable; credit Cash

B debit Cash; credit Accounts Receivable

C debit Cash; credit Accounts Payable

D debit Accounts Receivable; credit Cash

88 A bank reconciliation should be prepared periodically because

A the company's records and the bank's records are in agreement

B the bank has not recorded all of its transactions

C any differences between the company's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected

D the bank must make sure that its records are correct

89 The bank reconciliation

A should be prepared by an employee who records cash transactions

B is part of the internal control system

C is for information purposes only

D is sent to the bank for verification

A a deduction from the balance per company's records

B an addition to the balance per bank statement

C a deduction from the balance per bank statement

D an addition to the balance per company's records

92 Accompanying the bank statement was a debit memo for bank service charges What entry is required in the company's accounts?

A debit Miscellaneous Administrative Expense; credit Cash

B debit Cash; credit Other Income

C debit Cash; credit Accounts Payable

D debit Accounts Payable; credit Cash

93 A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695 This item would be included in the bank reconciliation as a(n)

A deduction from the balance per the company's records

B addition to the balance per the bank statement

C deduction from the balance per the bank statement

D addition to the balance per the company's records

94 A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695 What entry is required in the company's accounts?

A debit Accounts Payable; credit Cash

B debit Cash; credit Accounts Receivable

C debit Cash; credit Accounts Payable

D debit Accounts Receivable; credit Cash

95 Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300 This item would be included on the bank reconciliation as a(n)

A deduction from the balance per company's records

B addition to the balance per bank statement

C deduction from the balance per bank statement

D addition to the balance per company's records

96 Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300 What entry is required in the company's accounts?

A debit Sales; credit Cash

B debit Cash; credit Accounts Receivable

C debit Cash; credit Sales

D debit Accounts Receivable; credit Cash

97 Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the company This item is a(n)

A deduction from the balance per company's records

B addition to the balance per bank statement

C deduction from the balance per bank statement

D addition to the balance per company's records

98 Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the customer What entry is required in the company's accounts?

A debit Notes Receivable; credit Cash

B debit Cash; credit Miscellaneous Income

C debit Cash; credit Notes Receivable

D debit Accounts Receivable; credit Cash

99 The amount of deposits in transit is included on the bank reconciliation as a(n)

A deduction from the balance per the company's books

B deduction from the balance per bank statement

C addition to the balance per bank statement

D addition to the balance per company books

100 The amount of the outstanding checks is included on the bank reconciliation as a(n)

A deduction from the balance per company's records

B addition to the balance per bank statement

C deduction from the balance per bank statement

D addition to the balance per company's records

101 Which of the following items that appeared on the bank reconciliation did not require an adjusting entry?

A bank service charges

B deposits in transit

C NSF checks

D A check for $630, recorded in the check register for $360

102 What entry is required in the company's accounts to record outstanding checks?

A debit Accounts Receivable; credit Cash

B debit Cash; credit Accounts Receivable

C debit Cash; credit Accounts Payable

D none

103 Accompanying the bank statement was a debit memo for an NSF check received from a customer This item would be included on the bank reconciliation as a(n)

A deduction from the balance per company's records

B addition to the balance per bank statement

C deduction from the balance per bank statement

D addition to the balance per company's records

104 Accompanying the bank statement was a debit memo for an NSF check received from a customer What entry is required in the company's accounts?

A debit Other Income; credit Cash

B debit Cash; credit Other Income

C debit Cash; credit Accounts Receivable

D debit Accounts Receivable; credit Cash

105 The amount of cash to be reported on the balance sheet at June 30 is the

A total of the cash column in the cash receipts journal as of June 30

B adjusted balance appearing in the bank reconciliation for June 30

C total of the cash column in the cash payments journal as of June 30

D balance as of June 30 on the bank statement

109 A bank reconciliation should be prepared

A whenever the bank refuses to lend the company money

B to explain any difference between the company's balance per books with the balance per bank

C by the company's bank

D by the person who is authorized to sign checks

110 Harris Company had checks outstanding totaling $15,400 on its May bank reconciliation In June, Harris Company issued checks totaling $64,900 The June bank statement shows that $47,600 in checks cleared the bank in June A check from one of Harris Company's customers in the amount of $300 was also returned marked "NSF." The amount of outstanding checks on Harris Company's June bank reconciliation should be

111 Meredith Company gathered the following reconciling information in preparing its May bank reconciliation:

113 Jamison Company developed the following reconciling information in preparing its June bank reconciliation:

115 During a bank reconciliation process,

A Outstanding checks and deposits in transit are added to the bank statement balance

B Outstanding checks are subtracted and deposits in transit are added to the bank statement balance

C Outstanding checks and deposits in transit are subtracted from the bank statement balance

D Outstanding checks are added and deposits in transit are subtracted from the bank statement balance

116 In the normal operation of business you receive a check from a customer and deposit it into your checking account With your bank statement you are advised that this check for $775 is “NSF” The bank also informs you that due to the amount of activity on your business account the monthly service charge is $75 During a bank reconciliation, you will:

A subtract both values from balance according to bank

B add both values from balance according to books

C add both values from balance according to bank

D subtract both values from balance according to books

117 A $150 petty cash fund has cash of $44 and receipts of $93 The journal entry to replenish the account would include a

A credit to Petty Cash for $49

B debit to Cash for $93

C debit to Cash Over and Short for $13

D credit to Cash for $44

118 A $135 petty cash fund has cash of $28 and receipts of $110 The journal entry to replenish the account would include a

A credit to Petty Cash for $110

B debit to Cash for $110

C credit to Cash Over and Short for $3

D credit to Cash for $82

119 Entries are made to the Petty Cash account when

A making payments out of the fund

B recording shortages in the fund

C replenishing the petty cash fund

D establishing the fund

121 The debit recorded in the journal to reimburse the petty cash fund is to

A credit to Petty Cash for $95.75

B credit to Cash for $90

C debit to Cash Short and Over for $4.25

D credit to Cash Short and Over for $4.25

123 A $140 petty cash fund has cash of $20 and receipts of $117 The journal entry to replenish the account would include a credit to

A Cash for $20

B Cash Over and Short for $3

C Petty Cash for $120

D Cash for $120

124 Cash equivalents include

A checks

B coins and currency

C money market accounts and commercial paper

D stocks and short-term bonds

125 Cash equivalents

A are illegal in some states

B will be converted to cash within two years

C will be converted to cash within 90 days

D will be converted to cash within 120 days

127 Which of the following would not be included with the Cash and Equivalents on the Balance Sheet?

129 The following data were gathered to use in reconciling the bank account of Savannah Company:

Balance per company records 16,125

130 Consider the cash account below

Additional Information: cash disbursements were 80% of collections

131 Which of the following would be deducted from the balance per books on a bank reconciliation?

135 You began your new job as the accountant at Bolivar Industries during the month of December During your first month, you found several interesting issues

1) While looking through the invoices, you found Invoices 213-242, 245-271, and 275-290 It appears that invoices 243, 244, 272, 273, and 274 are missing

2) During the month, Clerk # 3 issued $250 in refunds as compared to Clerks #1, #2, and #4 who issued less than $50 each

3) The daily cash receipts and bank deposits reconcile, except on Tuesdays during the month

4) Business is generally brisk during the holiday season, but two weeks before Christmas there was a sudden increase in slow payments

REQUIRED:

Part A: What kind of warning signs could be associated with these issues?

Part B: What control could you put in place regarding cash refunds mentioned in Part A (2)?

(a) All mail is opened by the mail clerk, who forwards all cash remittances to the cashier The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts

(b) The accounts payable clerk prepares a voucher for each disbursement The voucher along with the

supporting documentation is forwarded to the treasurer’s office for approval

(c) At the end of each day, all cash receipts are placed in the bank’s night depository

(d) The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer

137 The following procedures were recently implemented at the Pampered Pets, Inc For each procedure, indicate whether the internal control over cash represents (1) a strength or (2) a weakness If it is a weakness, please explain why

(a) At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages

(d) Along with the petty cash expense receipts for postage, office supplies, etc., several post-dated employee checks are in the petty cash fund

138 The following selected transactions relate to cash collections for a firm that maintains a $100 change fund

at all times Present entries to record the transactions for each of the two days of cash receipts from sales

(a) Actual cash in cash register, $4,512.36; cash receipts per cash register tally, $4,413.07

(b) Actual cash in cash register, $3,812.95; cash receipts per cash register tally, $3,712.16

139 The actual cash received during the week ended January 16 for cash sales was $7,427 and the amount indicated by the cash register total was $7,413 Journalize the entry to record the cash receipts and cash sales

141 Consider the cash account below

Additional Information: cash disbursements were 80% of collections

How much was the Beginning Balance of the Cash Account?

or Credit Memo

Increases or Decreases the Company’s Bank Account Balance

Bank correction of an error due to posting another customer’s check

(disbursement) to your account

147 The following items may appear on a bank statement:

1 NSF check

2 EFT Deposit

3 Service charge

4 Bank correction of an error from recording a $300 check as $30

Indicate whether the item would appear as debit or credit memo on the bank statement and whether the item would increase or decrease the balance

of your account Use the following format:

148 The following information is from Madison Corporation’s accounting records for May 20XX Check #

3269 was returned as a double payment and voided Checks that have not cleared the bank include 3252, 3260, and series 3275-3278

In addition to the above list of the checks, Madison had check #2264 for $32.98 and check #2655 for $45.99 outstanding previously that have not cleared

1 Create an outstanding checks list for Madison at the end of May 20XX

2 What is the total amount of checks that cleared the bank (written in May)?

company’s records Assume that none of the transactions reported by bank debit and credit memos have been recorded by the company Also, indicate by writing (Entry) those items that will require a journal entry in the company’s accounts

1 Deposits in transit

2 Bank service charges

3 NSF check

4 Outstanding checks

5 Check for $690 incorrectly recorded by the company as $960

6 Check for $420 incorrectly recorded by the company as $240

150 Using the following information, prepare a bank reconciliation for Young Co for August 31, 2014:

(a) The bank statement balance is $4,690

(b) The cash account balance is $5,080

(c) Outstanding checks amounted to $715

(d) Deposits in transit are $1,020

(e) The bank service charge is $40

(f) A check for $72 for supplies was recorded as $27 in the ledger

151 Using the following information, prepare a bank reconciliation for Cole Co for May 31, 2011:

(a) The bank statement balance is $2,936

(b) The cash account balance is $3,194

(c) Outstanding checks amounted to $465

(d) Deposits in transit are $655

(e) The bank service charge is $50

(f) A check for $97 for supplies was recorded as $79 in the ledger

152 Bank reconciliation information for Cole Co for May 31, 2011 is as follows:

(a) The bank statement balance is $2,936

(b) The cash account balance is $3,194

(c) Outstanding checks amounted to $465

(d) Deposits in transit are $655

(e) The bank service charge is $50

(f) A check for $97 for supplies was recorded as $79 in the ledger

Record the appropriate journal entry for Cole Co.

153 The bank statement for Gatlin Co indicates a balance of $7,735.00 on June 30, 2010 After the journals for June had been posted, the cash account had a balance of $4,098.00 Prepare a bank reconciliation on the basis of the following reconciling items:

(a) Cash sales of $742 had been erroneously recorded in the cash receipts journal as $724

(b) Deposits in transit not recorded by bank, $425.00

(c) Bank debit memo for service charges, $35.00

(d) Bank credit memo for note collected by bank, $2,475 including $75 interest

(e) Bank debit memo for $256.00 NSF (not sufficient funds) check from Janice Smith, a customer

155 For each of the following, explain whether the issue would require you to prepare a journal entry for your company, assuming any original entry is correct If an entry is required, please include it as part of your

answer

(1) The bank recorded your deposit as $91 rather than the actual amount of $191

(2) Two outstanding checks amounted to $450

(3) Company check number 538 for postage was recorded incorrectly by the company bookkeeper as $50 instead of $59

(4) The bank paid a check for $500 after the company had issued a stop payment and voided the check

(5) An EFT deposit was made by one of the company’s customers, Atlas Design, for merchandise received The sale had previously been recorded when shipped and was equal to the payment amount of $125

156 The following data were gathered to use in reconciling the bank statement of Build-A-Lot:

Required:

(1) What is the adjusted balance on the bank reconciliation?

(2) Journalize any necessary entries for Build-A-Lot based on the bank reconciliation.

157 The bank statement for Gatlin Co indicates a balance of $7,735.00 on June 30, 2010 After the journals for June had been posted, the cash account had a balance of $4,098.00

(a) Cash sales of $742.00 had been erroneously recorded in the cash receipts journal as $724

(b) Deposits in transit not recorded by bank, $425.00

(c) Bank debit memo for service charges, $35.00

(d) Bank credit memo for note collected by bank, $2,475 including $75 interest

(e) Bank debit memo for $256.00 NSF (not sufficient funds) check from Janice Smith, a customer

158 Journalize the entries to record the following:

Mar 1 Established a petty cash fund of $300

Mar 31 The amount of cash in the petty cash fund is now $64 The fund is replenished based on the following receipts: office

supplies, $137; selling expenses, $112

Record any discrepancy in the cash short and over account

159 On April 2nd, Granger Sales decides to establish a $125.00 Petty Cash Account to relieve the burden on Accounting

(a) Journalize this event

(b) On April 10th, the petty cash fund has receipts for mail and postage of $43.50, contributions and donations

of $29.50, meals and entertainment of $38.25 and $13.55 in cash Journalize the replenishment of the fund

(c) On April 11th, Granger Sales decides to increase petty cash to $200.00 Journalize this event

The petty cash fund was established to have $800 in it

Based on what you have found, what journal entry should be recorded to replenish the fund?

161 Journalize the entries to record the following:

Jun 1 Established a petty cash fund of $200

Jun 30 The amount of cash in the petty cash fund is now $57 The fund is replenished based on the following receipts: postage, $25; entertainment $100; miscellaneous $20

Record any discrepancy in the cash short and over account

162 Journalize the entries to record the following:

Sept 1 Established a petty cash fund of $350

Sept 30 The amount of cash in the petty cash fund is now $130 The fund is replenished based on the following receipts: office supplies, $116; postage $100

Record any discrepancy in the cash short and over account

(a) Where are cash equivalents disclosed in the financial statements?

(b) List three examples of cash equivalents

Required:

(a) Should you implement some controls on petty cash? Why?

(b) If so, what controls could be used for petty cash?

165 Why would a bank require a company to maintain a compensating balance?

166 Farm Store, Inc reported the following data in its December 31, 2011 annual report

Required:

(1) What is the company’s “cash burn” per month?

(2) What is the company’s ratio of cash to monthly cash expenses?

(3) Interpret the ratio you computed in part 2 What are the implications for Farm Store, Inc.

167 Peaches, Inc reported the following data in it’s December 31, 2011 annual report:

Cash and cash equivalents $460,000

Cash flow from operations (240,000)

Required:

(1) What is the company’s “cash burn” per month?

(2) What is the company’s ratio of cash to monthly cash expenses?

168 The following data is from the Miser Company for years ended 2008-2011

December 31 Data

Calculate the following:

December 31 Data

169 The following data were gathered to use in reconciling the bank account of Savannah Company:

Balance per company records 16,125

170 Match the following elements of internal control:

provides reasonable assurance that business

goals will be achieved

172 Two features of internal control are presented in the following sections Each is followed by a list of four irregularities that occurred in processing data Identify the one irregularity from each list that would be

discovered or prevented by the feature of internal control described

(a) The sum

(1) Five hours of services were rendered but the customer was only billed for four hours

(2) A cash receipt of $750 was recorded correctly in the accounts receivable controlling account but was posted to the customers

ledger as $75

(3) A bill for services rendered to Cole Co was erroneously posted to the account of Coleman Co in the customers ledger (4) No entry was made in the accounting records for services rendered to a customer