TestBank financial accounting 2n spiceland ch4

After examining the May bank statement and items included with it, the company's accountant found the following items: What is the amount of cash that should be reported in the company's

Student: _

True False

improperly valuing assets, and mismatching revenues and expenses

True False

behavior of top executives, Congress passed the Sarbanes-Oxley Act

True False

True False

dealing with auditing, quality control, ethics, independence, and other activities relating to the preparation

of audited financial reports

True False

audit clients

True False

effectiveness of all internal control processes that could affect financial reporting

True False

and (2) safeguard the company's assets

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

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

34 Differences in the company's cash balance and the bank's cash balance occur because of either timing differences or errors

46 Cash is typically reported as a current asset in the balance sheet

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 Have limited responsibility for financial statements

B Must personally prepare the company's financial statements

C Must personally certify the company's financial statements

D Are not allowed to view the company's financial statements

59 Under the provisions of the Sarbanes-Oxley Act, auditors must do which of the following?

A Provide nonaudit services for their clients

B Audit public companies whose chief executives worked for the audit firm in the preceding year

C Be hired by company management

D Maintain working papers for at least seven years following an audit

60 Which of the following is NOT a design feature of effective internal controls?

A Allow greater reliance by investors on reported financial statements

B Prevent fraudulent or errant financial reporting

C Ensure the company's price advantage over competitors

D Prevent misuse of company funds by employees

61 A framework for designing an internal control system is provided by the:

A Committee of Sponsoring Organizations

B Financial Accounting Standards Board

C Securities and Exchange Commission

D International Accounting Standards Board

62 The components of internal control do not directly include:

A Risk assessment

B Inflation adjustment

C Monitoring

D Control activities

63 Separation of duties refers to:

A Making each manager personally responsible for his/her department

B Keeping functions across different departments separate

C Preventing top management and lower-level employees from interacting

D Individuals who have physical responsibility for assets should not also have access to accounting records

64 Which employees have an impact on the operation and effectiveness of internal controls?

D Undeposited customer checks

66 Common examples of cash equivalents include all of the following except:

A Money market funds

B Treasury bills

C Certificates of deposit

D Accounts receivable

67 Which of the following would NOT represent good controls over cash receipts?

A Record all cash receipts as soon as possible

B The employee that receives cash and checks should also deposit them in the bank

C Open mail each day and make a list of checks received with the amount and payer's name

D Verify cash receipts by comparing the bank deposit slip with the accounting records

68 Which of the following would NOT be recorded as a cash sale?

A Customer who pays with a check

B Customer who pays with a debit card

C Customer who pays with a credit card

D A customers who buys on account

69 McGregor Company allows customers to pay with credit cards The credit card company charges

McGregor 3% of the sale When a customer uses a credit card to pay McGregor $200 for services provided, McGregor would:

A Debit Cash for $200

B Credit Service Revenue for $194

C Debit Service Fee Expense for $6

D Credit Service Revenue for $206

70 A customer purchased a $2,000 item at ApplianceWorld, paying with a credit card ApplianceWorld is charged a 2% fee by the credit card company When recording this sale, ApplianceWorld would:

A Debit Accounts Receivable for $2,000

B Credit Sales Revenue for $2,000

C Credit Sales Revenue for $1,960

D Credit Unearned Revenue for $2,000

71 Which of the following would NOT represent good controls over cash disbursements?

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?

A Deposits outstanding recorded by the company but not the bank

B Interest earned recorded by the bank but not the company

C NSF checks recorded by the bank but not by the company

D Checks written by the company and recorded by the bank

74 On May 31, Money Corporation's Cash account showed a balance of $10,000 before the bank

reconciliation was prepared After examining the May bank statement and items included with it, the company's accountant found the following items:

What is the amount of cash that should be reported in the company's balance sheet as of May 31?

76 The following information was taken from the bank reconciliation for Mooner Sooner Inc at the end of 2012:

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?

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?

A Subtract interest earned from the bank's balance

B Add service charge to the company's balance

C Subtract NSF checks from the company's balance

D Add deposits outstanding to the company's balance

80 After preparing a bank reconciliation, the collection of a note by the bank on a company's behalf would be recorded with:

A A credit to Notes Receivable

B A credit to Cash

C A debit to Notes Receivable

D A credit to Accounts Receivable

81 After preparing a bank reconciliation, the service fee charged by the bank would be recorded with:

A A credit to Service Fees Expense

B A debit to Cash

C A credit to Service Fees Revenue

D A debit to Service Fees Expense

82 After preparing a bank reconciliation, a check outstanding for the payment of advertising would be

83 The following data were obtained from the bank statement and from the process of reconciling it:

Bank service charges = $20

Deposit outstanding = $150

Interest earned on the bank account = $10

Checks outstanding = $400

Which items should be deducted from and added to the bank balance in completing the reconciliation?

A Deduct checks outstanding; add service charges and deposit outstanding

B Deduct interest earned; add deposit outstanding

C Deduct checks outstanding; add deposit outstanding

D Deduct deposit outstanding; add checks outstanding

84 The balance in the Colt Company's Cash account on August 31 was $19,700, before the bank reconciliation was prepared After examining the August bank statement and items included with it, the company's

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 Petty cash fund

B Cash receipts fund

C Cash payments fund

D Cookie jar fund

87 Which of the following is NOT involved in the replenishment of the petty cash fund?

A Transactions related to vouchers will be recorded

B Management will verify that the total of all vouchers equals the amount of cash missing from the petty cash fund

C Weekly payroll checks will be recorded

D Management will withdraw cash from the bank and place it in the petty cash fund

88 At the time a $400 petty cash fund is being replenished, the company's accountant finds vouchers totaling

$350 and petty cash of $50 The vouchers include: postage, $100; business lunches, $150; delivery fees,

$75; and office supplies, $25 Which of the following is not recorded when recognizing expenditures from the petty cash fund?

A Debit Postage Expense, $100

B Debit Supplies, $25

C Credit Petty Cash, $350

D Debit Petty Cash, $350

89 A company's cash balance is reported in which two financial statements?

A Income statement and statement of cash flows

B Balance sheet and statement of cash flows

C Income statement and balance sheet

D Balance sheet and statement of stockholders' equity

90 The statement of cash flows reports cash flows from the activities of:

A Operating, purchasing, and investing

B Borrowing, paying, and investing

C Financing, investing, and operating

D Using, investing, and financing

91 Operating cash flows would exclude:

A Payment of employee salaries

B Receipt of cash from customers

C Payment of dividends

D Payment for advertising

92 Cash flows from investing do not include cash flows from:

93 Cash flows from financing activities include:

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:

What is the amount of Terastar's free cash flows for 2013?

A $3,000

B $13,000

C $9,000

D $7,000

96 Terastar Corp reports the following amounts for 2012 and 2013

What is the trend in free cash flows relative to net income?

A Both are increasing

B Net income is trending upward and free cash flows are trending downward

C Both are decreasing

D Net income is trending downward and free cash flows are trending upward

97 A company had the following sales transactions:

1 Total debit card sales = $200,000

2 Total credit card sales = $400,000

3 Total cash sales = $800,000

4 Total check sales = $100,000

There is a charge of 2% on all credit card transactions Calculate total sales revenue recorded for the year

98 A company had the following transactions:

1 Paid $150 for office supplies using a debit card

2 Purchased office equipment costing $700 using a credit card

3 Paid utilities bill of $400 by issuing a check

Record each transaction

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

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.'

116.A company had the following transactions during the year:

1 Paid rent for the next two years, $8,000

2 Purchased office supplies on account, $2,400

3 Purchased equipment, paying $12,000 cash and issuing a note payable for $4,000

4 Borrowed from the bank, $6,000

5 Paid employee salaries, $7,200

6 Paid $2,000 on account related to transaction 2 above

7 Paid dividends to stockholders, $2,800

8 Sold land for $10,000 that was purchased in a prior year for $7,500

9 Collected cash from customers for services provided, $25,700

Calculate cash flows from operating activities, investing activities, and financing activities

117.Below is a summary of all the transactions of Sampson Consulting for the month of April 2012.

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

04-119

119.What is internal control? Briefly describe the five components of internal control outlined by the

Committee of Sponsoring Organizations (COSO)

04-119

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

04-119

121.Describe the procedures used to reconcile a company's cash balance

04-119

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

04-119

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.

130. Transfer of data from lower managers to top executives for accurate financial reporting

140. Checks written to the company that are returned by the bank as not having adequate funds Answer: d

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

150. Sell office building

Answer: d

151.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

Pay 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 investing activities?

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?

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 Ensuring the business is profitable

B Enhancing the health of employees

C Improving the accuracy and the reliability of financial information

D Ensuring the compliance with tax regulations

157.Which of the following is NOT correct regarding the reporting of cash?

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 Added to the company's cash balance

B Added to the bank's cash balance

C Subtracted from the company's cash balance

D Subtracted from the bank's cash balance

159.Fraudulent reporting by management could include:

A Fictitious revenues from a fake customer

B Improper asset valuation

C Mismatching revenues and expenses

D All of the above

160.The Sarbanes-Oxley Act (SOX) mandates which of the following?

A Increased regulations related to auditor-client relations

B Increased regulations related to internal control

C Increased regulations related to corporate executive accountability

D All of the above

161.Which of the following would not be considered good internal control for cash receipts?

A Allowing customers to pay with a debit card

B Requiring the employee receiving cash from customers to also deposit the cash into the company's bank account

C Recording cash receipts as soon as they are recorded

D Allowing customers to pay with a credit card

162.Investing cash flows would include which of the following?

A Payment of cash dividends to stockholders

B Purchase of office supplies with cash

C Purchase of a building with cash

D Cash sales to customers

163.What is the concept behind separation of duties in establishing internal controls?

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 Operating cash flow

B Investing cash flow

C Financing cash flow

D Not a cash flow

166.Providing services to customers on account is considered a(n):

A Operating cash flow

B Investing cash flow

C Financing cash flow

D Not a cash flow

167.Issuing common stock for cash is considered a(n):

A Operating cash flow

B Investing cash flow

C Financing cash flow

D Not a cash flow

168.After preparing the bank reconciliation, an NSF check would result in which of the following when

recording the adjustment to the company's cash balance?

A Debit to Service Fee Expense

B Credit to Accounts Payable

C Credit to Service Revenue

D Debit to Accounts Receivable

169.Which employees are the ones who must take final responsibility for the establishment and success of internal controls?

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?

175.Giving only management the right to make purchases over a certain amount is an example of which preventive control?

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

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

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

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

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

230.A company's operating cash inflows less operating cash outflows generally equals the reported amount of net income in the income statement

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 Have limited responsibility for financial statements

B Must personally prepare the company's financial statements

C Must personally certify the company's financial statements

D Are not allowed to view the company's financial statements

237.Under the provisions of the Sarbanes-Oxley Act, auditors must do which of the following?

A Provide nonaudit services for their clients

B Audit public companies whose chief executives worked for the audit firm in the preceding year

C Be hired by company management

D Maintain working papers for at least seven years following an audit

238.Which of the following is NOT a design feature of effective internal controls?

A Allow greater reliance by investors on reported financial statements

B Prevent fraudulent or errant financial reporting

C Ensure the company's price advantage over competitors

D Prevent misuse of company funds by employees

239.A framework for designing an internal control system is provided by the:

A Committee of Sponsoring Organizations

B Financial Accounting Standards Board

C Securities and Exchange Commission

D International Accounting Standards Board

240.The components of internal control do not directly include:

A Risk assessment

B Inflation adjustment

C Monitoring

D Control activities

241.Separation of duties refers to:

A Making each manager personally responsible for his/her department

B Keeping functions across different departments separate

C Preventing top management and lower-level employees from interacting

D Individuals who have physical responsibility for assets should not also have access to accounting records

242.Which employees have an impact on the operation and effectiveness of internal controls?

D Undeposited customer checks

244.Common examples of cash equivalents include all of the following except:

A Money market funds

B Treasury bills

C Certificates of deposit

D Accounts receivable

245.Which of the following would NOT represent good controls over cash receipts?

A Record all cash receipts as soon as possible

B The employee that receives cash and checks should also deposit them in the bank

C Open mail each day and make a list of checks received with the amount and payer's name

D Verify cash receipts by comparing the bank deposit slip with the accounting records

246.Which of the following would NOT be recorded as a cash sale?

A Customer who pays with a check

B Customer who pays with a debit card

C Customer who pays with a credit card

D A customers who buys on account

247.McGregor Company allows customers to pay with credit cards The credit card company charges

McGregor 3% of the sale When a customer uses a credit card to pay McGregor $200 for services provided, McGregor would:

A Debit Cash for $200

B Credit Service Revenue for $194

C Debit Service Fee Expense for $6

D Credit Service Revenue for $206

248.A customer purchased a $2,000 item at ApplianceWorld, paying with a credit card ApplianceWorld is charged a 2% fee by the credit card company When recording this sale, ApplianceWorld would:

A Debit Accounts Receivable for $2,000

B Credit Sales Revenue for $2,000

C Credit Sales Revenue for $1,960

D Credit Unearned Revenue for $2,000

249.Which of the following would NOT represent good controls over cash disbursements?

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?

A Deposits outstanding recorded by the company but not the bank

B Interest earned recorded by the bank but not the company

C NSF checks recorded by the bank but not by the company

D Checks written by the company and recorded by the bank