multiple choice/word bank

Question 1

Six internal control principles related to cash transactions are discussed in the textbook. These principles are:

Answer 1

• Establishment of Responsibility
• Segregation of Duties
• Documentation Procedures
• Physical Controls
• Independent Internal Verification
• Human Resource Controls

Question 2

The duties of approving an item for payment and paying the item should be performed by different individuals SEGREGATION OF DUTIES

Answer 2

SEGREGATION OF DUTIES

Question 3

Cash register tapes should be used for over-the-counter receipts > DOCUMENTATION

Answer 3

DOCUMENTATION

Question 4

Each check should be compared with approved invoices before being issued

Answer 4

INTERNAL VERIFICATION

Question 5

Only the treasurer should be authorized to sign checks

Answer 5

ESTABLISHMENT OF RESPONSIBILITY

Question 6

All personnel who handle cash should be bonded

Answer 6

HUMAN RESOURCE CONTROLS

Question 7

All checks should be prenumbered

Answer 7

DOCUMENTATION

Question 8

After payment, an invoice should be stamped “PAID.”

Answer 8

DOCUMENTATION

Question 9

Blank checks should be stored in a safe, and access should be restricted

Answer 9

PHYSICAL CONTROLS

Question 10

Daily cash counts should be made by cashier department supervisors

Answer 10

INTERNAL VERIFICATION

Question 11

Only designated personnel should be authorized to handle and have access to cash receipts

Answer 11

ESTABLISHMENT OF RESPONSIBILITY

Question 12

The duties of receiving and recording cash should be assigned to different individuals

Answer 12

SEGREGATION OF DUTIES

Question 13

Small bills and coins on hand to resupply cash registers should be kept in a safe

Answer 13

PHYSICAL CONTROLS

Question 14

An employee’s monthly credit card payments are nearly 75% of their monthly earnings

Answer 14

FINANCIAL PRESSURE

Question 15

An employee earns minimum wage at a firm that has reported record earnings for each of the last five years

Answer 15

RATIONALIZATION

Question 16

An employee has an expensive gambling habit

Answer 16

FINANCIAL PRESSURE

Question 17

An employee has check-writing and -signing responsibilities for a small company, and is also responsible for reconciling the bank account

Answer 17

OPPORTUNITY

Question 18

For which of the following will an adjusting entry be required as the result of a bank reconciliation?
* Outstanding checks
* NSF checks
* Deposits in transit
* Bank errors

Answer 18

• NSF checks

Question 19

Which of the following is a basic principle of cash management?

• Maintain a high cash balance for unanticipated emergencies
• Defer the timing of major expenditures
• Increase the speed of receivables collection
• Keep inventory levels high

Answer 19

Increase the speed of receivables collection

Question 20

Which item is a current asset?

• Restricted cash that will not be used within the upcoming year.
• Cash that will be used to close a plant in eighteen months.
• Cash equivalents.
• Cash – regardless of whether it has a positive or negative balance.

Answer 20

• Cash equivalents.

Question 21

Interest is usually associated with
* bad debts.
* notes receivable.
* doubtful accounts.
* accounts receivable.

Answer 21

• notes receivable.

Question 22

The term “receivables” refers to
* cash to be paid to debtors.

• merchandise to be collected from individuals or companies.
• cash to be paid to creditors.
• amounts due from individuals or companies.

Answer 22

• amounts due from individuals or companies.

Question 23

Which of the following is one reason that companies estimate uncollectible accounts?

• To write off the amounts which will not be collected from customers
• To determine the total amount owed by customers
• To match the expense associated with receivables against the related revenues
• To identify which customers’ accounts will become uncollectible

Answer 23

To match the expense associated with receivables against the related revenues

Question 24

What occurs when a company factors its receivables?

• An aging analysis is performed
• An estimate for bad debts is made
• Receivables are sold
• Accounts are written off

Answer 24

• Receivables are sold

Question 25

Allowance for Doubtful Accounts on the balance sheet

• increases the cash realizable value of accounts receivable.
• is deducted from accounts receivable.
• is offset against total current assets.
• appears under the heading “Other Assets.”

Answer 25

• is deducted from accounts receivable.

Question 26

The interest rate for a three-month loan would normally be stated in terms of which of the following rates of interest?

• Daily
• Monthly
• Annual
• Quarterly

Answer 26

Annual

Question 27

One characteristic of a plant asset is that it is

• held for sale in the ordinary course of the business.
• not currently used in the business but held for future use.
• used in the operations of a business.
• intangible.

Answer 27

• used in the operations of a business.

Question 28

Which of the following assets does not decline in service potential over the course of its useful life?

• Fixtures
• Furnishings
• Land
• Equipment

Answer 28

Land

Question 29

The term applied to the periodic expiration of a plant asset’s cost is
* depreciation.
* amortization.
* cost expiration
* depletion.

Answer 29

depreciation

Question 30

The book value of an asset is equal to the:

• blue book value relied on by secondary markets.
• replacement cost of the asset.
• asset’s fair value less its historical cost.
• asset’s cost less accumulated depreciation.

Answer 30

• asset’s cost less accumulated depreciation.

Question 31

Which of the following amounts are deducted from employees’ paychecks?

• Federal Unemployment Taxes Payable and State Unemployment Taxes Payable
• FICA Taxes Payable and State Unemployment Taxes Payable
• Federal Unemployment Taxes Payable and FICA Taxes Payable
• Federal Income Taxes Payable and FICA Taxes Payable

Answer 31

• Federal Income Taxes Payable and FICA Taxes Payable

Question 32

Which one of the following is not a typical current liability?

• Mortgages payable
• Current maturities of long-term debt
• Interest payable
• Salaries payable

Answer 32

• Mortgages payable